4 months ago
25
Amid expectations that the Federal Reserve will cut benchmark interest rates in the coming months, analysts at investment banking company Jefferies anticipate that mortgage rates could reach 6.5% at the end of 2024 and 5.75% in 2025, unlocking $2.7 trillion in refinancing opportunities.
“Recent economic data supports a path toward rate cuts and, therefore, a refinance rally,” Jefferies analysts Derek Sommers and John Hecht wrote in a report released Thursday. “We estimate a ‘near-the-money’ pipeline of approximately $2.7 trillion to be refinanced if rate cuts materialize.”
Soft inflation prints have made the environment more favorable for rate cuts. The Consumer Price Index (CPI) declined by 0.1% from May to June while rising 3% annually, the slowest growth rate in more than three years.
In addition, Fed Chair Jerome Powell recently stated that policymakers would not wait for inflation to reach 2% before cutting benchmark rates, which are currently ranging from 5.25% to 5.5%.
As a result, monetary policy watchers believe there is a 95.3% chance of rates staying unchanged in July, along with a 98.1% chance of a rate cut in September, according to the CME Group‘s FedWatch Tool.
According to Jefferies analysts, the Fed’s moves will bring mortgage rates to 6.5% at the end of this year and 5.75% in 2025. At HousingWire’s Mortgage Rates Center, the 30-year rate for conventional loans averaged 7.01% on Thursday morning.
The analysts said mortgage rates of 6.5% will be enough for refinance volume to increase during the fourth quarter of 2024 and the first quarter of 2025. That’s because lenders produced the $2.7 trillion in originations from Q4 2022 to Q2 2024 at averages rates of 6.25% to 7.75%.
Therefore, a “meaningful amount” will be eligible for a rate-and-term refinance when 30-year mortgage rates revert to the range of 6% to 6.5%, the analysts concluded.
The analysis incorporates principal amortization and a prepayment assumption in projecting outstanding vintage balances.
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