{"id":8546,"date":"2024-11-25T22:18:55","date_gmt":"2024-11-25T22:18:55","guid":{"rendered":"https:\/\/finderica.com\/mortgage-rates-improve-after-new-treasury-secretary-bessent-announced\/"},"modified":"2024-11-25T22:18:55","modified_gmt":"2024-11-25T22:18:55","slug":"mortgage-rates-improve-after-new-treasury-secretary-bessent-announced","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=8546","title":{"rendered":"Mortgage Rates Improve After New Treasury Secretary Bessent Announced"},"content":{"rendered":"
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As I\u2019ve been saying for a while now, all of the potential bad news (for mortgage rates) has been largely baked in over the past couple months. And then some!<\/p>\n

Meanwhile, anything potentially positive for mortgage rates, such as easing inflation and higher unemployment, has largely been ignored. Rates can\u2019t seem to catch a break.<\/p>\n

Simply put, we have experienced a very defensive bond market lately, which in turn drives consumer mortgage rates higher.<\/p>\n

Nobody has wanted to stick their neck out given the incoming administration\u2019s proposed sweeping economic changes.<\/p>\n

But as I suspected, many of the much talked about policies like tariffs and trade wars may not actually materialize, which should help mortgage rates get back on their downward track.<\/p>\n

Treasury Secretary Bessent Viewed as a Less Inflationary Choice<\/span><\/h2>\n

Without getting too convoluted here, the appointment of Treasury secretary Scott Bessent has eased inflation concerns.<\/p>\n

He is seen as a less volatile, more conservative choice to implement some of Trump\u2019s ideas without ruffling as many feathers.<\/p>\n

This includes lowering government spending and using the threat of tariffs to improve trade relations. It all points to easing inflation instead of rising prices.<\/p>\n

Lower inflation is good for bonds, and thus good for mortgage rates since they track longer-maturity bond yields like the 10-year.<\/p>\n

Prior to this announcement, there was a lot of fear surrounding Trump\u2019s policies, which include tax cuts and a trade war with China and other countries.<\/p>\n

Specifically, his tariffs are seen as inflationary as the costs are typically just passed on to consumers.<\/p>\n

And given inflation has been the chief concern in the economy these past few years, the idea of reigniting it led to a big increase in the 10-year yield.<\/p>\n

It increased nearly 90 basis points in the span of less than two months, sending the 30-year fixed from around 6% back to above 7%.<\/p>\n

Prior to Trump\u2019s victory, it appeared as if the 30-year was destined for the 5% range again.<\/p>\n

Many have been saying that mortgage rates in the mid-5s, or possibly even higher, would normalize the housing market and bring buyers back.<\/p>\n

In hindsight, that move lower was short-lived, but it might receive a second chance via a more balanced fiscal approach driven by Bessent.<\/p>\n

3-3-3 Plan, But Maybe Not 3% Mortgage Rates<\/span><\/h2>\n

One of Bessent\u2019s key talking points is his \u201c3-3-3 plan<\/a>.\u201d<\/p>\n

It includes reducing the budget deficit to 3% of GDP by 2028, aiming for 3% economic growth via reduced regulation, and increasing domestic oil production by 3 million barrels per day.<\/p>\n

This simplistic plan likely appealed to Trump, despite Bessent having Democratic ties in the past.<\/p>\n

But the three-pronged approach appears to be positive for bonds because it\u2019s anti-inflationary.<\/p>\n

Less government spending and a more conservative approach to the impending trade war and tariffs could temper inflation concerns.<\/p>\n

Higher oil production could also lead to lower prices for consumers since production costs are typically passed on to the end user.<\/p>\n

While this all sounds pretty good, it\u2019s important to note that it too is all speculative.<\/p>\n

So a return to 3% mortgage rates might be the one \u201c3\u201d that doesn\u2019t quite materialize under this plan.<\/p>\n

However, another one of Bessent\u2019s ideas is getting foreign countries to buy long-term U.S. government debt.<\/p>\n

This is seen as \u201cpaying upfront<\/a>\u201d for access to the United States\u2019 massive defense umbrella.<\/p>\n

A renewed demand for treasuries could push down 10-year bond yields, which correlate really well with the 30-year fixed mortgage rates.<\/p>\n

In short, his proposals could reverse the recent uptick in bond yields and get them back on their descending track.<\/p>\n

If you recall, the 10-year yield was close to 3.50% in mid-September before the election took center stage.<\/p>\n

Assuming the near-100 basis point increase turns out to be unwarranted, yields could move back to those levels.<\/p>\n

They could actually fall even more beyond that if the trajectory was reinstated.<\/p>\n

Sprinkle in some spread compression between mortgage rates and bond yields and you\u2019d actually be in the high-4s for a 30-year fixed.<\/p>\n

Just remember that with this nomination, we are now going to speculate in a different direction, and ultimately what\u2019s really going to matter (as always) is the economic data.<\/p>\n

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\"Colin<\/div>\n
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Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.<\/p>\n<\/div>\n<\/section>\n

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\"Colin<\/div>\n
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