After improving significantly over the last seven weeks, the rally in interest rates has fizzled out. We’ll need a favorable CPI index in tomorrow to regain any momentum.
I did a little research and discovered that over the last 50 years (the time I’ve been alive), the Fed Funds Rate has averaged 5.42%. That rate currently sits at 5.25% for banks and 5.5% for consumers, so the blended rate of 5.375% is less than average. I think it’s important to educate people that rates are not now abnormally high. Sure, it would be nice if they improved to make goods (especially houses) more affordable, but we’re currently below average.
The 30 year mortgage averages 2.0% higher than the 10 Year Treasury Note in a healthy economy. The 10 year is trading at 4.24% today, and government loans are lower than that benchmark while conventional mortgages are higher by the same margin (see below). Extremely average.
As the 2-10 spread continues to try to right itself from the -0.48% inversion, the Fed cutting the short side of the graph may not affect mortgage rates in the way that I personally am hoping for. In fact, we need a 1.5% Fed rate cut with mortgage rates staying the same as they are today for the bond market to regain normalcy.
