“We modified a few things on rates,” the economist said. “We now see mortgage rates coming down ending 2024 just below 6%. Our fourth-quarter number is 5.8%, which is a shift. Previously, we had somewhere within the neighborhood of 6.5%, in order that’s a fairly good drop.”
Rate cuts depend upon a wide range of aspects
In terms of rate cuts: “We shifted our pondering on the Fed from previously three rate cuts in ’24 to now 4 rate cuts in ’24. The market is arguing perhaps as much as seven. We don’t see that; we expect that’s pretty aggressive.”
A more arcane metric that’s contributed to high rates is the spread – the gap between the 30-year mortgage rates and its cousin, the 10-year Treasury yield. That interval colloquially often called the spread typically runs between 1.5 to 2 percentage points. But of late, the gap has at times exceeded 3%, unlike differentials seen throughout the Great Recession.
Duncan now sees a niche reduction: “We also think that as there’s more clarity on the Fed’s portfolio, a few of which may show up in a discount within the spread within the mortgage space. So, even when the underlying rates don’t fall as far, spreads narrow. That, too, will bring that rate all the way down to consumers.”
Duncan referenced the abstraction of the spread to those outside the economic cognoscenti: “It’s funny. If you ask people why spreads are wide, they are saying ‘due to volatility.’ Well, what’s driving volatility? They’ll say ‘well, the Fed.’ Well, what concerning the Fed? Then the conversation kind of dissipates.”
