Transcript
Dave Meyer (0:00)
The mortgage rate roller coaster has taken yet another turn over the last couple of weeks, with the average rate on a 30 year fixed dropping from 7.25% down to 6.75% as of this recording. And that's been great news, but it also has the whole real estate world wondering, will rates now go lower or is this just a temporary reprieve before rates just rise again? Today we're digging in on the future of rates, and I'll even give you my advice on if now is a good time to lock in or if you're better off waiting. Hey everyone, it's Dave, head of real estate investing at Biggerpockets. And today we're coming to you with a quick bonus episode of the podcast. Mortgages have been in the news a lot the last few weeks. Well, really the last few years. But many, many of you have been reaching out to me over the last couple days to ask about what this means for the future of rates. They've gone down a little bit, but are they going to keep going down even lower? And over just this past weekend, I was reading a great article from one of my personal favorite analysts, someone I've been following for years, Logan Motashami, who works over at Housing Wire. He wrote this article about whether there's room for rates to fall even further. And since Logan is such a pro, he does his own economic forecasting and he's basically just right a lot. I figured I'd share the highlights of Logan's article with all of you, provide some of my own feedback and thoughts. But before we do that and jump into it, I need to provide a little bit of context because Logan really gets into some important economic principles. And I just want to give everyone a little bit of background about the two main drivers for mortgage rates. It's not the Fed. You've probably heard me say that a lot. It's actually two different things. It's about the yield on a US treasury and the quote, unquote spread. Yields are basically the interest that an investor earned earns when they lend money to the government in the form of bonds. And the spread is the difference between the yield on a bond and mortgage rates. All right, so as I said at the beginning of the show, mortgage rates have dropped from about seven and a quarter to six and three quarters. So why is that happening? Let's refer to what Logan Motashami, who wrote this article that I'm going to be reviewing today, says. He writes, quote, economic data has been consistently underwhelming of Late. And with the 10 year peaking earlier this year, the slide from 4.79 to 4.2% has been a relatively common move whenever economic data gets softer. So just to unpack what he's saying, the data that we get every week, every month about the economy, this can be in the form of labor market data, it can be inflation data, it can be consumer spending, it could be news about tariffs or trade deficits. All that stuff that you see maybe in the Economic Times or the Wall Street Journal or on social media, whatever it is, that stuff has been a little bit weaker than investors were expecting. And there is just this ongoing dynamic. This is almost always how it works. But when economic data is bad, yields go down. And so what Logan is saying is that yields have dropped from about 4.8% to about 4.2% and that's what has driven mortgage rates down over the course of 2025 so far. Knowing that the question is, will yield fall even further? Logan does something I personally don't do, where he actually maintains these complex economic models. And he makes really specific predictions about what's going to go on with bond rates, with mortgage rate rates. And his prediction for the 10 year yield is that it will fluctuate in 2025 between 3.8% and 4.7%. Just looking at that, he believes that there is further room for mortgage rates to go down. Right, because we're saying that yields are at 4.2%, his range goes down to 3.8%, meaning that mortgage rates could go down another.4% or 40 basis points. But I think a really important component of this prediction, that they could go down more, comes with something else. Logan says. He says, quote, it will be challenging to reach my target of 3.8% on the 10 year yield without more economic softness or a stock market sell off that would push funds into the safety of bonds. He has this broad range of 3.8% to 4.7%. But he's saying that it only goes to the bottom end of the range where mortgage rates go down if the economy gets worse from here, and if the economy gets better, it could go back up. And this is a super important point, I'll just say it again, that yields really fluctuate largely on investor confidence in the broader economy. Yields rise when there's confidence and it falls when there is fear. So Logan is saying that yields won't fall further unless there is worse economic news. And for what it's worth, I totally agree with this. Rates will really only fall with Worse economic news. But the trouble for us as investors is that economic news is just really mixed these days. Like, one week, you get really good inflation reading. It's encouraging, gets excited. Then there's just a really bad one and everyone sells off. Then there's a great labor report. The next week there's a bad one. One week we hear tariffs are on, then the next week tariffs are off. And that's not saying that we know whether the economy or the market is good or bad. It's just very confused right now. And with confusion comes volatility. And so while I have really no reason to doubt Logan's ranges, he's smarter than me. But I do think we don't yet have a signal that yields are going to keep going down. He's saying they can go down to 3.8% if the economy gets worse. But for that, we would need a clear indicator that the overall economy is struggling more and more. And although that is possible, it is not yet clear that's what's happening. So what does this mean for investors? Is it possible that yields are going to go down and take mortgage rates down with them? Yeah, it's possible, but, you know, your stock portfolio might be going down at the same time, or there might be a higher unemployment rate, which will have all these secondary implications for real estate investors. Remember, this is really important. It's possible that they go back up. If we get more positive economic news or if we see higher inflation rates in the next couple of months, rates could absolutely go back up. And so I truly believe that Logan's range here is right. But that's a pretty big range. Right? It's the difference between a mortgage rate that's near 6 and a mortgage rate that's near 7. And we really just don't know where that's going to fall. There is just still too much uncertainty. So I get that people are excited that rates could go down, but they could also go back up. So just keep that in mind as investors. I will get at the end of the episode what I think this means you should do about all that, but just keep that in mind as we move on and briefly talk about the second criteria in mortgage rates, which is the spread. But first, we have to take a quick break. We'll be right back.