September Fed cut will help ease mortgage rates: Economist

Thirty-year mortgage rates have hit above 7% with some experts believing it could hit 8% pretty soon. With US housing pricing and demand remaining high while supply remains low, it seems hopeless for many potential homebuyers.

Mortgage Bankers Association Chief Economist Mike Fratantoni joins Wealth! to give insight into the housing market and why home buyers should have a little hope on the horizon as he believes mortgage rates will gradually decline.

Fratantoni explains that he feels confident the Federal Reserve will cut interest rates this year, which will trickle down into the rest of the economy: "Mortgage rates, which I'll call it 7.25 [percent], in the most recent data, we think will be down to about 6.5 [percent] by the end of the year. It really is going to be reflecting a gradual slowdown in the strength of the economy and we expect the unemployment rate is going to rise not very much. We know they are calling for a recession but we do think there is going to be enough of a slowdown that the Fed should feel comfortable cutting rates by September of this year."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Transcripción del vídeo

BRAD SMITH: The Federal Reserve has doused any hope that home buyers had that mortgage rates would soften anytime soon. The average rate on a 30-year fixed loan hit 7.1% according to Freddie Mac. That's the first time the weekly average has exceeded 7% this year. That's a significant jump from last week's 6.88% mark.

For more on the housing market, we're joined by Mike Fratantoni, who is the Mortgage Bankers Association chief economist. Mike, thanks so much for taking some time here on "Wealth!" with us. First and foremost, you actually believe that mortgage rates will gradually decline this year. What's the time frame look like for that?

MIKE FRATANTONI: Yeah well Brad Thanks for having me. And we did just roll out our new forecast this week. And I think Jennifer covered it well, the inflation news over this past week, the conversations that various Fed officials have had, clearly indicating they're going to be slower in cutting rates.

And we've moved our forecast from anticipating three cuts this year to anticipating two, the first one probably in September. So mortgage rates, which are call it 7 and 1/4 in the most recent data, we think we'll be down to about 6 and 1/2 by the end of the year.

It really is going to be reflecting a gradual slowdown in the strength of the economy. And we expect the unemployment rate's going to rise-- not very much. We're no longer calling for a recession. But we do think there's going to be enough of a slowdown that the Fed should feel comfortable cutting rates by September or this year.

BRAD SMITH: What if they don't? If we don't see any cuts from the Fed this year? The Fed, perhaps says, you know what? We want to look apolitical, especially in an election year, and they have a history of trying to make sure that is well intact. So all of that considered, if we did not see any rate cuts, what does that do for the prospect of homebuyers seeing lower mortgage rates?

MIKE FRATANTONI: Yeah. It's a risk. But I think the other factor that's playing into their consideration really is the global environment. You see the European Central Bank clearly signaling they're going to begin to cut rates. You see currency movements moving strongly against other currencies, the dollar strengthening.

That's going to help bring our inflation number down, even more quickly than we had thought previously. So I think if the Fed really stands out as the only central bank not cutting at some point later this year, that's what is going to push them to move.

Totally take your point, they want to be seen as non-political. We think they are not making monetary policy with an eye towards politics to the strength of the economy.

But they have a two-sided mandate. They not only have to keep inflation at 2%, they want to keep employment as high as it can get. And I think that employment side of their mandate is going to start looking more troublesome as we get through the course of this year.