Today, Fed Chair Kevin Warsh gave one of the best Fed press events I have ever seen, and much of what he said sets the course for the economy and housing for the next few years. Unlike some predictions I saw that said the Fed rate hike would drive bond yields lower, yields rose even as stocks fell while Warsh was talking.
Yesterday, I wrote this article about the Fed rate hike cycle and what history tells us about how it will affect mortgage rates, noting why this cycle is different than previous ones. On tomorrow’s episode of the HousingWire Daily podcast with Editor in Chief Sarah Wheeler, we go in-depth about this Fed meeting and in particular, Warsh’s Q&A session with reporters. But I also wanted to give you my quick takes.
The key for mortgage rates!
Warsh did a good job today outlining how the economy has improved recently, especially from last year, and what’s driving rates higher:
- The labor market improved.
- A lot of corporate issuance for AI companies created competition for bonds.
- The conflict in the Middle East.
I looked at the key factors for rates for the rest of 2026 and 2027 in this podcast, but now, after the Fed meeting I want to point them out again.
1. The Iran conflict
The Fed doesn’t like the conflict, and neither does the bond market. We only have so much control over this, but this entire event has been dragging on real estate and mortgage since the first deal broke off in July. The housing market held up even when mortgage rates rose from 5.99% toward 6.64%, but above 6.64% — and now above 7% — we haven’t been able to grow sales under these conditions.
As we can see with purchase application data, rates above 6.64% with duration have taken us from growth to negative data year over year. Of course, rates were 1% lower at this time last year as well.
You can see a sharper decline in the Xactus Mortgage Intent Index data when mortgage rates went over 7% and headed higher.
Now that Warsh and the market have shown us that higher energy prices have been a headwind on mortgage rates, we know what has to happen to help mortgage rates go lower.
2. The trade war
President Trump isn’t going to give up on his love on tariffs; he could have taken the out with the Supreme Court ruling on the matter, but chose not to. However, he can make sure it doesn’t get worse, because again, the Fed and the markets don’t like tariffs. The Fed was going to let the one-time tariff impact fade in the second half of 2026, but because labor data rebounded, Warsh said today they can focus more on inflation data. The goal is to head toward 2% inflation without breaking the economy, and this is year 5 of this not happening.
3. The economy
Not much can be done on the economy; nobody is going to raise taxes and reduce spending to slow it down, but labor data is the key, as always. Warsh correctly said the labor data stabilized and he used jobless claims on the 4-week moving average as a measure of that, which is my favorite economic indicator. In fact, since 2022 I have often repeated my claim: don’t talk about a recession until this data line heads toward 323,000 on the 4-week moving average; we aren’t there or anywhere close.
Conclusion
All in all, it hasn’t been the best few weeks for the housing market, but I believe today was a good step to address what’s really been the problem with rates this year: inflation and the Iran conflict. What hasn’t helped is the president asking for the lowest rates in the world, while not focusing on the issues. That act is getting very old and he talked about this again that after the Fed meeting.
The economy has been resilient, as Warsh discussed today. Retail sales beat estimates today, and Q3 GDP is running at 5.1%, so this rate hike made sense to the Fed.
What can bring mortgage rates down? We don’t want to create a recession to lower rates, but the administration can manage the trade war and the conflict better. These are two things that are in our control to a degree, and these are two things the Fed hawks have not liked for the past 12 months. I believe today was a good step on getting the message to the White House of what needs to be done.
