Announcement is good news for the housing outlook – but optimism comes with a caveat, says broker
Ten-year US Treasury yields tumbled on Tuesday evening as the US announced a two-week pause on hostilities in Iran, sparking hopes of lower mortgage rates and a boost to homebuyer confidence in the weeks ahead.
The conflict, which erupted at the end of February, canceled out a brief mortgage rate decline into the fives and sent scores of US homebuyers to the sidelines amid growing fears about surging oil prices and a potential big hit to the US economy.
Average 30-year fixed mortgage rates hovered around the 6.5% mark last week, according to the Mortgage Bankers Association (MBA), significantly higher than where they sat before the war.
But while yields edged up slightly on Wednesday morning after their big Tuesday drop as peace talks loomed between the US and Iran, the ceasefire is likely to provide “some temporary relief” for mortgage rates, according to Open Door Lending senior loan officer Kristin O’Neil (pictured top).
She told Mortgage Professional America she was greeting the news of a ceasefire with cautious optimism – but highlighted that the two sides still appear far apart on a deal and stressed that the mortgage market is a secondary concern to the real lives at risk in the conflict.
“Whatever happens in these negotiations, there are real people on the line, and that matters more than any rate sheet,” she said. “On the relief side, today is a very different story. With the ceasefire in place and the Strait of Hormuz [a key oil shipping route closed by Iran during the war] reopening, oil prices are dropping hard and that is directly good news for mortgage rates.
“When oil falls, inflation pressures ease, and bonds respond. We’re seeing that play out in real time today. That said, I want to be honest: when you look at what Iran is asking for versus what the US is offering, these two sides are still very far apart. So while today’s relief is real, it’s too soon to say whether this holds or whether we find ourselves right back where we started in two weeks.”
‘In real estate, mood matters’
While O’Neil’s local market of Richmond, Virginia hasn’t seen a sharp decrease in activity because of the war, applications have fallen across the country over the past several weeks – not just due to the conflict but also existing affordability issues and economic concerns.
“There’s real buyer hesitation out there and honestly, it makes sense,” O’Neil said. “War anxiety, rising gas prices, job uncertainty: these things are real, and they affect how people feel about making the biggest financial decision of their lives. A ceasefire helps with the mood and in real estate, mood matters.”
Mortgage executives have been frank about the negative impact a continuing war could have on the US housing market outlook for the remainder of the year.
Last week, Loan Factory chief executive officer Thuan Nguyen told MPA that Iran was the single biggest factor affecting the market’s prospects this year because of its potential to put further upward pressure on interest rates.
Will buyers jump back into the market – or wait some more?
For now, plenty of homebuyers and mortgage professionals will take a wait-and-see approach as they weigh whether the new ceasefire could lead to a more durable settlement between the two nations.
But for those buyers who are in a good position to purchase now, O’Neil said holding out for the perfect time to enter the market likely isn’t the best approach.
“Home price forecasts are actually being revised upward right now. Cotality just bumped their 12-month appreciation outlook to 4.7%. So waiting is not the safe play most people think it is,” she said. “You’re not just risking higher rates. You’re risking higher prices too.
“My advice to buyers right now is simple: the window is open. Do not wait for a perfect deal that may take weeks or months to materialize, or may not come at all.”
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