When the ceasefire ends, rates will likely jump again
Less than 24 hours after there was an announced ceasefire in the Iran War, the pause in hostilities already seems to be on shaky ground.
Continued attacks in the Middle East are causing some in the region to doubt that the ceasefire will hold for two weeks.
The short-term effects of the announced pause included a significant drop in the 10-year Treasury rate, which is tied to mortgage rates, as well as a dip in oil prices.
With Treasury yields falling by as much as 10 basis points on Wednesday, mortgage rates should follow suit this afternoon. However, one veteran broker is sending out a warning that this dip in rates may not last long.
Amir Nurani (pictured top), broker-owner at Left Coast Leaders, said he does not expect the ceasefire to hold, and expects more hostilities to cause rates to jump back up.
“I think the two-week pause is going to be exactly that,” Nurani told Mortgage Professional America. “I think it's going to be a pause for two weeks, and then I think we're right back to square one with the conflict. The reason is, when you understand the position culturally over there, those sides don't back down, like they don't want to back down, they're willing to fight to the end.”
The time to act is now
Rates falling on Wednesday were a direct sign that the markets were hopeful that the ceasefire would hold in the Middle East.
“As I'm talking to clients, one of the things I've told clients when this thing started heating up, especially for clients that are thinking about refinancing, is right now you're seeing rates elevated. Once you see resolution overseas, rates will instantly go back down. You’re seeing rates come down right now because we have a pause. The market is optimistic that we are going to see a resolution.
“But in two weeks' time, I don't think we're going to see that resolution. I think what you're going to see with mortgage rates is, over the next week, you will see them start to creep back up, if news doesn't come out that talks are going in the right direction.”
Nurani believes that if there are buyers on the fence who are deciding whether or not to act, he is encouraging them to act now before rates rebound again.
“I think if somebody was on the sideline, it makes sense to pull the trigger right now,” he said. “Because this conflict could last for much longer than anticipated, not because we want that to happen, but because that's just the nature of the beast.”
While everyone is hopeful that the two-week ceasefire could lead to a lasting peace agreement, Nurani said the more likely outcome is a resumption in hostilities, which will mean rates will stay elevated for a while.
“I do think we're going to be waiting for a while, and I don't think that you're going to have the full two weeks of optimism,” he said. “I think that right now you have optimism because there's a pause. I think that after a week, if nothing happens, you will start seeing mortgage rates start creeping back up.
“You'll see oil start creeping back up, because the market's going to go, ‘Wait a minute. We don't have any forward progress here. What's going to happen at the end of the two weeks?’ And I think that after two weeks, the United States is going to have to respond. I think escalation is on the horizon.”
Finding the right path forward for clients
Brokers everywhere are trying to decipher what is going to happen in the markets to be able to advise their customers in the best way. Nurani said he explains his rationale to his clients so that they can logically see why he is giving specific advice.
“Any advice that I give to clients is always prefaced with, ‘This is my take. This is where I think things are going, and this is what I think the highest probability outcome is,’” Nurani said. “Now, I don't have a crystal ball, right, and there's always a possibility that I'm incorrect. But this is my rhyme, reason, and logic, and if you can adopt my rhyme, reason, and logic, then this would be the play that you would make.”
He said another situation where he advised clients to wait was at the beginning of the pandemic in early 2020. He said that as rates were falling, some clients wanted to move forward. He told them that if they waited, rates were going to fall further.
“There were several clients who were on the fence to refinance,” Nurani said. “I said, ‘If you wait, you're going to get a better deal.’ I knew that because the uncertainty continued to build, and if uncertainty continued to build, then it would put downward pressure on mortgage rates. I knew that at that time, so I gave that guidance.
“Some listened, some didn't. Those who listened got rates in the twos. Those that didn't got rates in the threes, still a good rate. But the ones that aligned with the guidance got a better deal. I'm no oracle, but there are usually enough variables to look at and make a reasonable conclusion of what the most probable outcome is going to be.”
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