• Business

    Borrowing costs are falling—why aren’t mortgage rates?

    AnyFans Posted on

    By Mike Winters

    Copyright cnbc

    Borrowing costs are falling—why aren't mortgage rates?

    The spread has been wider than normal for two main reasons, Selma Hepp, chief economist at Cotality, tells CNBC Make It.

    Inflation “remains sticky,” especially for services and shelter, she says, with overall inflation climbing back to 2.9% year over year in August — above the Fed’s 2% target. Since higher inflation erodes the value of mortgage bond payments, investors tend to seek higher yields.

    And the Fed’s pullback from buying mortgage-backed securities has left private investors to fill the gap. “With less demand, [mortgage-backed security] prices fall, yields rise and mortgage rates increase. This widens the spread relative to Treasuries,” says Hepp.

    Considering that the Fed’s own projections don’t have inflation reaching 2% until 2028, the “current dynamic is likely to continue,” says Christopher Hodge, chief economist for the U.S. at Natixis CIB Americas. “This has increased longer-term inflation expectations, which increases the premium demanded for mortgages.”

    Those expectations help explain why Fannie Mae projects 30-year fixed rates will stay above 6% for another year, according to an updated forecast released Tuesday.

    Want to be your own boss? Sign up for Smarter by CNBC Make It’s new online course, How To Start A Business: For First-Time Founders. Find step-by-step guidance for launching your first business, from testing your idea to growing your revenue. Sign up today with coupon code EARLYBIRD for an introductory discount of 30% off the regular course price of $127 (plus tax). Offer valid September 16 through September 30, 2025.

    Plus, sign up for CNBC Make It’s newsletter to get tips and tricks for success at work, with money and in life, and request to join our exclusive community on LinkedIn to connect with experts and peers.

    You Might Also Like