The background: quieter mortgage interest
First things first: the mortgage interest rate has been very calm lately, even with a considerable number of economic data last week, a FED meeting and both the president and the FHFA director who calls on the FED chairman to resign. With all these events last week, the bond market traded very lightly and the mortgage interest rate did not move much either.
In general, this year has generally had less volatility in the rates compared to previous years. Here are the mortgage details of Freddie MacThe reach of the 30-year mortgage interest this year versus in recent years.
In my forecast of 2025 I expected the following series:
- Mortgage interest between 5.75% and 7.25%
- The 10-year yield fluctuates between 3.80% and 4.70%
The most important volatility event this year was the introduction of the Godzilla rates, as a result of which the return of 10 years fell below 4%. Although I did not agree with the response of the bond market, it is ultimately the market that dictates the short -term movements. Mortgage spreads deteriorated when the stock market entered a bear market, but the increase was only 0.20 to 0.25 basic points. After President Trump had discussed tariff delays, the stock market recovered quickly and we have not seen any shares in a correction since that announcement.
Have helped better mortgage spreads
This year the mortgage spreads have been more favorable compared to the previous two years, which has limited how high rates can rise, because spreads usually improve when the return of 10 years increases.
Regarding the return of 10 years, my prediction range is for 2025, which is 3.80%-4.70%, this year usually correct. We were slightly higher than 4.70% for a short time, but because I emphasize all year round, unless the labor market breaks and we get really bad economic data, the range of 4.35% -4.70% is completely acceptable in view of the FED policy and the FED that screams to the market that they are modestly restrictive. Unless the economic data deteriorates or the Fed is starting to sound, this reach seems good to me because they have increased their inflation expectations for this year.
The unusual response of the bond market to geopolitical events
Usually geopolitical events in the middle -old are preferred by the bond market and the US dollar, resulting in a lower mortgage interest rate. However, this year has been different. For example, when Israel started his attacks on Iran on 13 June 2025, we did not see the expected reactions in the bond market or the US dollar.
Given the American escalation on Saturday evening, it is important to check the trade in the markets on Sunday evening. (Follow my Instagram page for live updates on the US dollar, the oil prices and the bond market.) This last American action in the Middle East cannot lead to important market movements with regard to the 10-year return and mortgage interest rate, unless large escalations take place in the coming weeks.
Escalation will be the key
Iran has announced his intention to close the Strait of Hormuz, an action that I consider more as a theatrical maneuver than as an immediate threat. Nevertheless, we must follow this situation closely, because there may be potential for escalation in the coming week. If Iran chooses to de-escalate, this issue may not develop into considerable care, related to earlier geopolitical events that have received attention in the short term, but do not manifest themselves in larger market prices in bonds, oil and dollar.
An increase in oil prices or some disruption in the oil export would have negative consequences for different economies, in particular those of Iran and China, all dependent on the street of Hormuz for continuous operations. Moreover, if oil prices rise considerably and remain increased for a longer period, this could be challenges for the Federal Reserve and influence the mortgage interest.
However, much of this is speculative, because Iran’s next steps are outside of our control. Tonight and all week I will observe market movements to gauge how investors assess the corresponding risks.
Conclusion
As we have seen so often, 2025 has a large part of dramatic headlines. Apart from the Godzilla rates, the mortgage interest and return of 10 years have remained remarkably stable within an expected range, especially as long as economic indicators do not suggest this year that a recession is taking place.
We must closely follow all new variables in the economy and markets, but unless there is an important escalation in the middle, the focus on mortgage interest rate must concentrate on the labor market and how the Federal Reserve interprets the labor data.
