Mortgage rates are starting to drop after the US signed a preliminary peace deal with Iran this week. But a full return to the sub-6% levels seen before the war began may take months.
Stocks have rallied in response to the tentative agreement, and oil prices are dropping. Mortgage rates and the bond yields they closely track, however, are only modestly lower.
The fact that interest rates react quickly to negative shocks but take much longer to adjust to improving conditions is a frustrating yet common phenomenon that has sparked its own industry adage, mortgage experts tell Yahoo Finance.
“I always tell clients and agents, ‘Look, rates take the elevator up and the stairs down,'” said Jeff Pope, branch manager of Synergy One Lending in Houston.
So far, the current moment is following that trend: According to Freddie Mac data, the average 30-year fixed-rate mortgage dropped 5 basis points to 6.47% this week — in line with where rates have hovered for the past month — as the two countries worked toward a deal.
Read more: How to get the lowest mortgage rates right now
Mortgage rates are influenced by a number of factors, including inflation expectations, labor market trends, demand for mortgage-backed securities, future monetary policy, and overall market volatility.
The Iran deal has renewed optimism that inflation may fade — and lower inflation usually means lower mortgage rates — but the war lasted long enough to spike consumer prices by 4.2% in May. Traders now see growing odds of at least one rate hike this year, which could keep mortgage rates elevated.
The Fed has no direct control over mortgage rates, but its signals about where benchmark rates are headed can influence them. On Wednesday, mortgage rates moved higher late in the day after new Fed Chairman Kevin Warsh emphasized the central bank’s focus on inflation, and many Fed officials signaled that they think at least one quarter-point increase will be called for before the end of the year.
“As a mortgage lender, I don’t want to see Fed hikes right now,” said Chris Padley, a mortgage sales manager at Gateway Mortgage in Jenks, Okla.
Still, he’s not convinced a rate increase is inevitable. He’s been eyeing oil prices, which have retreated to around $75 a barrel from highs above $100, and is optimistic that cheaper oil may soon help lower inflation and negate the need for a Fed hike.
Rick Vega, a senior mortgage adviser and broker in Sarasota, Fla., sees a path for mortgage rates to fall below 6% this year if inflation eases. Still, he’s betting it won’t necessarily be smooth, given the amount of information markets react to, as well as lingering uncertainty about whether Iran and the US will reach a full peace deal.