Can Fed Cuts Bring Mortgage Rates Down?

Jim Egan and Jay Bacow, Co-Heads of Securitized Products Research at Morgan Stanley, discuss the impact of the Federal Reserve's anticipated rate cuts on the U.S. housing market. They analyze the current affordability challenges, highlighting the significant gap between prevailing mortgage rates and the effective rate on outstanding mortgages. While the Fed's actions might not directly lower mortgage rates, the discussion explores the influence of the Treasury curve and risk premiums. The hosts delve into the necessary decrease in mortgage rates to stimulate housing activity, concluding that a 100-basis-point drop to approximately 5.5% could lead to a 5% increase in purchase volumes by 2026, with potential for further growth in 2027.