Real Estate Estimates Get Relief Thanks to Jerome Powell!

The unimaginable is now a reality. Jerome Powell may have lowered mortgage rates.

I know what many are thinking. This will not happen. The Fed chair is the biggest villain when it comes to lending rates.

He raised rates 11 times and made mortgage rates skyrocket.

This man defied the President, who had a clear goal of returning mortgage rates to 3s or less! Or the story goes…

But it’s true, Powell silenced the bond market and mortgage rates during a Q&A session at Harvard University yesterday.

Powell Says Fed Can Wait and See on Higher Energy Rates

A major headwind for lending rates recently has been rising oil prices, with oil rising above $100 a barrel due to strikes and subsequent conflicts in Iran.

Oil prices were around $60 before the unexpected crash in late February, and are hovering around $105 today.

That led to fears of another wave of inflation, just as it seemed we were getting over the first one.

After all, oil is more expensive, consumers will face higher gas prices. This is already happening.

Furthermore, anything that requires energy/oil in its input costs, which is everything, will increase in price.

All of that means higher inflation, which led to a sharp increase in bond yields last month.

That rise in 10-year bond yields is in line with fixed 30-year mortgage rates, with the benchmark rate rising from 3.95% to around 4.50%.

Meanwhile, the 30-year fixed rate rose from levels below 6% at the end of February to around 6.625%.

Emphasis rough because the biggest price increases happen at the worst time of the year, the spring home buying season.

However, current Fed chairman Jerome Powell appeared to allay fears of a rate hike due to the Iran conflict.

While it doesn’t come as a surprise to me, it may come as a surprise to others who feel that Powell is an enemy of low mortgage rates.

During the Q&A session, he noted that “We feel like our policy is in a good place to wait and see how that plays out.”

In other words, the sky isn’t really shrinking, even though oil prices have taken off recently and many expect much higher inflation as a result.

This is classic Powell if you’ve been paying attention. He never reacts indifferently to anything.

You fully understand that this is a fluid situation and can change at any time. So for the Fed to suddenly move or cut because of that it would be ineffective.

Therefore, it will be the status quo, despite what happens.

He added that “Now we’re getting a power shock: nobody knows how big it will be. It’s too early to know.”

And that is exactly the case. We don’t know yet what the impact will be, as we didn’t know what the impact would be on mortgages, which in turn increased mortgage rates. temporarily.

Perhaps this situation will survive for a while longer, and will not require Fed intervention.

A Weak Labor Market Makes Powell’s Job Easy

One thing that makes the Fed’s job (and Powell’s) easier is that the labor market isn’t too hot right now.

The dual mandate of the Fed is to ensure high employment and price stability.

The price stability piece is in question with the recent rise in oil prices, but the employment piece is another matter.

There are a number of signs that fertility is struggling, even if it is not yet in crisis mode.

The latest data released today, the Job Openings and Labor Turnover (JOLTS) report, revealed that job openings are at their lowest level and employment is at its lowest level in nearly six years.

It’s a low-rent, fireless place and workers don’t feel very confident about leaving their current job and finding a new job. And employers are not willing to bring in new talent.

Powell recognizes this, saying “There’s a kind of downside risk in the labor market, which suggests keeping prices low, but there’s an upside risk to inflation, which suggests maybe not keeping prices low.”

He added that there is “a tension between these two goals,” which explains the way to do nothing.

Just wait and see what happens and don’t react without understanding the whole picture.

And if you look at the Fed’s rate projections, the chances of a rate hike are now slim again after last week’s jump.

Of course, the Fed does not set loan rates, but bond traders pay close attention to Fed rate expectations.

Meanwhile, the 10-year bond yield has fallen nearly 20 basis points (bps) in the past few days, leading to a slight rally in the mortgage rate.

And maybe, just maybe, you can thank Jerome Powell for a good episode of that.

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(photo: Federalreserve)

Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on X for the hottest.

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