What needs to happen for mortgage rates to fall?

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When will mortgage rates finally cool off?


A recent article from CBS News asked experts what needs to happen for mortgage rates to finally drop. They cited four aspects of the market that need to change.

First, the Federal Reserve needs to lower the federal funds rate. Jason Obradovich, the chief investment officer at New American Funding, said, “Mortgage rates will not fall until either the Federal Reserve lowers their benchmark rate, or they indicate that they will lower interest rates very soon.”

The Fed doesn’t set mortgage rates itself, but their decisions impact the bond market which has an affect on mortgage rates. It’s expected that the Fed is going to lower rates before the end of the year, but the exact timing is a guess at this point.

Second, inflation needs to cool off. Melissa Cohn, a regional vice president at William Raveis Mortgage, stated, “Inflation so far this year has been stuck around 3.7%. We have had a few data points recently such as the last Consumer Price Index number that showed the rate of inflation has finally dropped a bit in 2024. We will need to see that continue for rates to drop significantly.”

Third, the spending rate needs to decline. This means that consumers spend at a slower rate than they’ve been over the past few years.

Finally, the 10-year Treasury bond yield needs to drop. Cohn said, “Mortgage rates will fall when the yield of the 10-year bond drops. The yield will drop when there is more consistent evidence that the rate of inflation is declining towards the Fed’s goal rate of 2%.”


What’s the expectation for Friday’s PCE data release?


The Personal Consumption Expenditures Price Index is forecast to show that inflation will continue to be a little stickier than expected. Economists predict the overall PCE Price Index to rise 3.7% when comparing April 2024 to April 2023. On a month-over-month basis, the current forecasts predict a 0.3% increase, down slightly from the 0.32% mark in March 2024.


Is the San Francisco housing market bouncing back?


According to the latest home sales data, San Francisco has started to rebound, and it’s being led by luxury properties.

Ying He, a real estate agent at Barb Co., stated, “The market is in a recovery mode. I feel San Francisco really hit rock bottom in the fall and winter of 2023, and the market has come back very strong since the beginning of this year.”

Recent data shows that homes for sale at $10 million or higher are at their highest levels since spring 2022, and luxury listings priced at $5 million or higher are selling quicker than they were previously.

When asked for a prediction for the future of the San Francisco housing market, Alexander Fromm Lurie, a local real estate advisor, said, “Expect the spring selling season to extend into later June this year to make up for the heavy rains that stymied the early spring market. Historically, the summer season has offered buyers some terrific value buys. Because so many buyers check out for the summer, those who remain attentive often find themselves with less competition and more negotiating power.”


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