By Cleo Li – Co-Founder
As mentioned last week, I will summarize this week what I learned about the mortgage interest rate trend analysis from the .
Only one analyst presented on the (national) housing market and mortgage interest rates at the conference – Barry Habib, who is a leading expert in the industry and a three-time recipient of the Crystal Ball Award from Fannie Mae, Pulsenomics, and Zillow.
Habib’s thesis is that mortgage rates may move lower even if inflation temporarily rises, because weakening economic growth and recession fears eventually dominate the bond market, and drive the rates down. Given the recent mortgage rate hike, this view may be hard to accept.
However, his analysis made sense.
Oil Price Spikes Eventually Become Recessionary
Habib argued that oil prices can push inflation and interest rates higher at first. But there is a limit. When oil prices rise too much, investors stop worrying only about inflation and start worrying about recession. Historically, sharp oil price spikes have often come before recessions, a point other analysts have made as well, as I mentioned in At first, oil inflation pushes rates higher. Eventually, recession fears overtake inflation fears. When that happens, long-term bond yields often begin to fall, and mortgage rates tend to follow. His slide deck gave this example:
Inflation Is Probably Overstated
Shelter is a huge portion of CPI and PCE inflation calculations (44%!) The current BLS (Bureau of Labor Statistics) numbers for shelter inflation are 3% increase year-over-year. However, Habib argues that the government methodology of calculating shelter inflation is known for being lagging and outdated. Based on modern techniques with data from Fannie Mae, Apartment list, or Totality, etc., new rents (47% of the market) actually went down 1.7% YoY and renewals (53% of the market) were up 3%. On average, shelter increased 0.8% YoY, not 3% as the government used in the calculation.
Habib believes that (the government calculation of shelter inflation) has overstated the Core PCE inflation by about 0.4%.
Labor Market Weakness Supports Lower Rates
Despite the stable or even improving initial jobless claim reports, Habib believes that the labor market is weakening. The data he looked at is the job openings report.
ADP (one of the largest payroll companies in the world) private payroll job creation report has also been barely above zero.
The US economy is no longer creating as many jobs as it used to, and the unemployment rate is rising.
A softer labor market increases the likelihood of Fed rate cuts and lower mortgage rates.
A More Dovish Fed?
The Fed also matters. Habib views Warsh as market intelligent and market friendly. He also believes Warsh will be more willing to cut rates if economic growth slows. Habib also pointed to the 2026 Fed voting members, who he sees as more dovish overall. These are the members who vote on interest rate policy. Based on that mix, Habib expects the Fed to cut short-term rates over the next 12 months, lowering the Fed funds rate from (currently) 3.625% to 3.125%.
Concluding Thought
Barry Habib forecasts that the 30-year fixed mortgage rates could fall to an as low as 5.9% to 6.125% range over the next 12 months. It’s interesting that he did not provide any forecast for the high end of the mortgage rate. Probably a wise move given the uncertainty and volatility of the geopolitical tensions and oil prices.
My own expectation is that if and when the Iran War is over and the oil price settles, the 30-year fixed mortgage rate will head back down to ~6% (I agree with Habib’s analysis here). But as long as the war goes on and the oil price remains elevated, I expect the mortgage rate to remain in the 6.5%-7% range.
This means we probably should not expect mortgage rates to fall into the 5% range over the next 12 months. That is not necessarily bad for investors. Elevated mortgage rates keep many would-be buyers in the rental market. That increases rental demand and supports rent growth. We are already seeing this in the . Investors may have a chance to buy into a softer sales market and rent into a stronger rental market. That can improve cash flow over time and create a better entry point before the next wave of appreciation.
For long-term investors, the exact short-term path of mortgage rates matters less than understanding how interest rates affect affordability, rental demand, and future purchasing power. The better opportunity often comes from buying quality properties during periods of uncertainty, before the next cycle of appreciation begins.