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Mortgage rates have spiked up to 7%. It’s a warning from Wall Street.

Despite the Fed's September rate cut, along with promises of more, 30-year mortgage rates began rising abruptly in early October and spiked above 7% today:

What’s going on? Mark Zandi explains:

First, the strong economy is even stronger than anticipated, causing investors to re-think how quickly the Fed will cut rates. Equally important is investors’ rising expectation that former President Trump will win re-election (look at betting markets). Investors are taking Trump at his word and believe if he wins it will lead to higher tariffs, immigrant deportations, and deficit-financed tax cuts in a full employment economy, all of which means higher inflation and more government borrowing. The recent surge in mortgage rates is a clear indication what investors believe a Trump victory would mean for the economy and the nation’s fiscal outlook.

This is apparently what the MAGA cultists want. Trump has been crystal clear about his economic plans, and it's equally clear what those plans would lead to. Trump already produced one inflationary surge—justified by the pandemic—and now he plans to follow the same playbook again, but with no justification at all this time around. Anyone who votes for him should be careful what they wish for.

26 thoughts on “Mortgage rates have spiked up to 7%. It’s a warning from Wall Street.

  1. gibba-mang

    Nothing would make the Heritage Foundation more happy than another severe recession so social, medical and educational programs can be cut in the name of fiscal sanity

    1. Austin

      The need for social, medical and educational programs doesn't just evaporate though when you cut the funding for them... crime and social disorder just goes up when people across all of society can't get the social, medical or educational programs they need. We've seen this play out in other countries many, many, many times. Which of course is another plus for the Party of Law and Order, giving them more reason to quell riots and uprisings with the police and armed forces.

  2. FrankM

    Mortgage rates are subject to supply and demand like anything else. The economy continues to grow, increasing demand for investment capital. More demand = higher rates. Don't over-think it.

    1. Creigh Gordon

      Except that the supply of money isn't limited the way that, for example, commodities are. The Fed supplies as little or as much as the banking system wants at [the Fed's] target rate.

    1. Art Eclectic

      Or someone else is trying to goose the market by making people think there's a large swing toward a Trump win to get more suckers into the betting pool. There are so many people trying to cash out here it makes the head spin.

      A recap of the graft involved in this election will someday make for an interesting movie.

  3. Art Eclectic

    The housing market is on shaky ground. Existing home inventory is much higher than expected as buyers are on strike over excessive prices and uncertainty about the election results.

    Add into that mess, home insurance companies are pulling out of markets everywhere as costs from extreme weather events pile up.

    When nobody can get insurance, they can't underwrite mortgages, which will drive costs higher.

    1. Anandakos

      If people can't qualify for mortgages because they can't get insurance, that will lead to LOWER prices, because there will be significantly less "demand" for houses.

      1. Art Eclectic

        What I meant was mortgage costs, somebody has to pay for the risk and it's not going to be the mortgage bank. They'll roll the cost into a new mortgage product which will cost more.

    2. cmayo

      Is the market shaky, though? Is inventory higher than expected/trend? It doesn't look that bad to me: https://fred.stlouisfed.org/series/ACTLISCOUUS

      Otherwise, I think you have a good point in that if the market is perceived as being riskier, then mortgage lenders are going to charge a higher premium (i.e., higher interest rates) to price that risk into their product.

  4. Josef

    "Investors are taking Trump at his word." By all means, take a pathological liar at his word. What could possibly go wrong?

    1. realrobmac

      Say what you want about Trump. I've said plenty of terrible things. But the stuff he promised to do in the 2016 election, his administration attempted to do, pretty much across the board. I would expect the same should he win. His administration will work very hard to put all of his absolutely abominable plans into action.

        1. aldoushickman

          Well, you have to make a distinction between the things that Trump says he'll do, and the purported ends he claims to serve.

          So, when Trump says he'll beat inflation (which of course is already beaten, but whatever) by slapping enormous tarriffs on all imported goods, we shouldn't take that to mean "Aha! Trump will fight inflation!" but instead "Trump will slap enormous tarriffs on all imported goods." Which would make inflation worse, of course.

          Same deal with "unrigging the system for the little guy." Not only is it doubtful that Trump really intends that, but since the way he would pursue that end is through tax cuts for rich people, gutting the ACA, and turning the adminstrative state into an engine for rewarding his friends/himself and punishing his enemies, nothing he will do will actually further such a goal.

  5. Josef

    "Anyone who votes for him should be careful what they wish for." Trumps first try at tarrifs cost farmers a lot. They still supported him. The people voting for Trump know who they are voting for, they just don't care.

    1. aldoushickman

      I think that part of it is that people are (a) stupid and (b) in a siloed media culture. People who like Trump are not hearing about how tarriffs are sales taxes on the things they buy, but instead that Trump pwned some egghead mainstream media reporter when they suggested that Trump's tarriffs would be bad and Trump thundered about how No, They Will Be Great.

      I also tend to think that perhaps the pluralistic representative democracy of much of the 20th century might well be an emergent feature of the level of technology available at the time. Mass media encourages a populace that (mostly) agrees on the facts but (mostly) disagrees on a narrow-ish range of values and tactics, which is perfect for democracy. Narrow-cast media enables people to live in their own crazy worlds whereby MAGA folks are MAGA, and the rest of us can't fathom wtf they are going on about.

      Another confounding variable may be that, as humanity progresses, the populace at large (at least in the US) is largely comfortable, and thus politics devolves from a peacefum mechanism whereby legit greivances are addressed and lives improved to a sort of team-sport where identity is most important. Exhibit 1 is how worked up Republicans appear to be about immigration and trans people, even though they can't really point to any concrete actual examples of how either of those things negatively impacts them.

      1. Josef

        As a teamster I've had to listen to disparaging remarks about gender identity along with the same about trans people from my teamster brothers for a while now. None of them have yet to have any meaningful interactions with any trans person or had to refer to someone as a gender that doesn't conform to their personal belief. Meanwhile they support a man who hired scabs and bragged how he hates paying overtime and would go to great lengths to avoid doing so. Transgender and gender identity has no effect on their lives, yet this is the stuff that preoccupies their minds. Not the scab hiring con man.

  6. skeptonomist

    If Trump is elected and carries through on his threat to bend the Federal Reserve to his will (which he has actually done before) or just has Congress make him decide what federal funds will be, do you think he won't drop it down "on day one" to zero? I don't claim to know exactly what Trump is thinking or even exactly how rates would respond to his hypothetical actions, but that is a much more probable thing to happen than Zandi's speculation. "A clear indication" - that is a joke. Finance page writers spout this stuff all the time and they are usually wrong.

    But higher mortgage rates would be the least of the economic problems if Trump get control.

  7. James B. Shearer

    "...Trump already produced one inflationary surge ..."

    This is nonsense. Trump and Biden collectively added too much stimulus sparking inflation. Since Biden added second I would assign him most of the blame. I suppose this is arguable but assigning all of the responsibility to Trump is just ridiculous.

    1. aldoushickman

      "Since Biden added second I would assign him most of the blame. "

      Oh ffs, the whole goddamn planet experienced inflation because of the motherfucking pandemic,* the single most significant event in human history since the second world war. And the US experienced less inflation than basically any of our peer nations. There really shouldn't be any question of "blame" when it comes to the Biden admin's handling of things, but instead a questions of how much praise and gratitude is due.
      ____
      *with a healthy (or unhealthy?) assist from bird flu when it comes to things like eggs, which for some moronic reason idiots fixate on the price of in reporting and in personal anecdotes, as if any appreciable fraction of Americans in 2024 has a household budget significantly devoted to chicken egg purchases.

      1. Thyme Crisis

        Yeah, even Japan managed to get hit by inflation, which if you look at the last several decades of their economy, is a remarkable thing. No one was escaping this.

  8. Altoid

    I would have expected much better from Zandi than to rely on such an easily- and obviously-gamed indicator as the betting markets. Next thing he'll be using price moves in DJT stock to explain mortgage rates.

    There are people in this country who have more money than God and who will bend heaven and earth with that money to make people believe trump's about to steamroll to a smashing 60-40 win. Everything about the betting markets, DJT stock, and election polling has to begin there if anything about this election or these markets is to be understood.

  9. Chondrite23

    The Fed is trying to fight inflation with the only tool they feel they can use - interest rates. In the old days there were lots of companies that needed to borrow money to finance their businesses and when rates went up they slowed their business activity. Same for customers. Currently, lots of the largest companies are swimming in cash and don’t need to borrow. Apple, Google, Amazon and others generate tons of cash. Interest rates have no effect on their business. Apple frequently supplies their vendors with capital equipment so that they don’t have to borrow either. The alternative, I guess, would be to start taxing some of these activities but that seems to be off the table. I’ve no expertise in this area so I don’t know what other levers they have to pull.

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