Why a Return to 6% Mortgage Rates May Take More Than Lower Oil Prices

What happened

HousingWire Lead Analyst Logan Mohtashami told attendees at the American Credit Union Mortgage Association’s Make Your Mark Conference in Las Vegas that a sustained move in mortgage rates back to 6% faces several obstacles. His comments, reported on September 22, focused on inflation pressures, Federal Reserve guidance, the 10-year Treasury yield and mortgage-rate spreads.

Recent oil-price increases and a higher 10-year Treasury yield have made the rate outlook more difficult, he said. In his view, an end to Middle East conflict and oil returning toward $68 to $70 per barrel would not by themselves assure materially lower mortgage rates.

The key details

Mohtashami said rates could remain roughly in a 6.5% to 6.75% range until the Federal Reserve offers clearer guidance that supports lower rates. He also said a durable decline would require several developments to line up: easing geopolitical tensions, lower energy prices, and less inflation pressure from tariffs and other sources.

Mortgage rates reflect both Treasury yields and the spread between mortgages and those yields. He said those spreads have improved substantially from the highly elevated levels seen during the 2023 banking crisis.

• At the worst 2023 spread levels, he estimated mortgage rates would be about 8.36% today.
• Applying the worst spreads from 2024 would put rates near 7.96%, while the prior year’s worst levels would imply about 7.87%.
• He said spreads typically worsen when the Fed raises rates aggressively or credit markets begin to break down, conditions he did not see at financial-crisis levels currently.

The labor market may not quickly create a separate path to much lower rates, he added. He estimated breakeven job growth at about 33,000 jobs per month, or potentially less, meaning multiple weak payroll reports might occur without a major rise in unemployment. He identified jobless claims as a more important signal of meaningful labor-market weakening.

Why it matters

Mohtashami characterized affordability, rather than a shortage of listings, as the primary limit on housing demand. He said the market has become healthier as home-price growth has slowed and inventory has risen, though inventory growth itself has also decelerated.

That slower inventory growth, he said, lowers the risk of either rapidly accelerating home prices or a sharp decline in prices. Moderating price appreciation can also give household incomes more time to catch up with housing costs when wage growth exceeds home-price growth.

He rejected comparisons between current conditions and those before the 2008 financial crisis, citing credit performance, borrower equity and down payments. About 40% of U.S. homes have no mortgage, he said, and he described aggregate homeowner equity as substantially higher, and the loan-to-value ratio on mortgaged homes as far lower, than in 2006 through 2008.

Mohtashami also disputed the idea that low-rate borrowers have stopped the market from functioning. He said the share of mortgaged homeowners with rates below 4% is declining as borrowers sell and move, while different generations continue to participate as buyers and sellers.

What to watch

The immediate signals in this outlook are developments in Middle East tensions, oil prices, the 10-year Treasury yield and other sources of inflation pressure. The Federal Reserve’s communications will also be central, since Mohtashami said the Fed remains constrained by resilient economic growth and commodity-driven inflation concerns.

For housing conditions, the reported indicators to follow are the pace of home-price growth relative to wages, inventory growth, mortgage spreads and jobless claims. These measures may clarify whether affordability is improving and whether the conditions he outlined for lower mortgage rates are beginning to align.