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Home»Real Estate»Will we see a Santa Claus rally in mortgage rates?
Real Estate

Will we see a Santa Claus rally in mortgage rates?

December 1, 2024No Comments2 Mins Read
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Amid initial concerns about tariffs potentially driving mortgage rates up to 8% and dampening housing demand, recent developments have brought some positive news. The 10-year yield has stabilized at a crucial technical level and even reversed course, leading to improved mortgage rates. Surprisingly, housing demand has held steady, despite the higher mortgage rates.

While the uptick in demand may not be substantial, it is a step in the right direction and certainly cause for optimism. Let’s delve into the latest housing data to gain valuable insights as we near the end of the year.

10-year yield and mortgage rates

In my 2024 forecast, I outlined:

  • A mortgage rate range of 7.25% to 5.75%
  • A 10-year yield range of 4.25% to 3.21%

The recent decline in mortgage rates can be attributed to fluctuations in the bond market and the sentiment among bond traders. With the Citigroup Economic Surprise Index peaking in the short term and then fading, bond traders see potential gains in purchasing the 10-year bond at its current level.

Previously, concerns about a resurgence of inflation and the need for interest rate hikes raised alarms. However, the peak in the 10-year yield around 5% in 2023 and the subsequent downtrend suggest that as long as economic data remains stable, bond yields should stay below 5%, keeping mortgage rates from nearing 8%.

The concept of a Santa Claus rally involves investors driving mortgage rates lower by buying the 10-year yield. This interplay between the 10-year yield and mortgage rates has been observed in the past two years, and we may see a repeat this year.

Mortgage spreads

The mortgage spread situation has improved in 2024 compared to the challenges faced in 2023. This positive shift has allowed mortgage rates to reach 6% without the 10-year yield hitting 3.37% in 2024. Without this improvement in spreads, mortgage rates could have exceeded 7.50% by now.

chart visualization

Although spreads have slightly increased since the rise in mortgage rates in September, they are still at much better levels compared to last year’s peaks. Maintaining lower spreads has helped keep mortgage rates in check, showcasing positive progress in the mortgage market.

Claus Mortgage rally Rates Santa
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