Daybreak Weekend: US Mortgages, Nobel Prize, China Golden Week

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

John Tucker (0:10)

This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our daybreak anchors all around the world. Just ahead on the program, we'll discuss mortgage rates in the US and also the outlook for the housing market moving forward. I'm John Tucker in New York.

Tiwa Adebayo (0:25)

I'm Tiwa Adebayo in London where we're asking just how political this year's Nobel Prize presentations could get.

Doug Krisner (0:31)

I'm Doug Krisner looking at how Chinese consumers may spend during the Golden Week holiday.

SPEAKER_1 (0:38)

That's all straight ahead on Bloomberg Daybreak Weekend, on Bloomberg 1130 New York, Bloomberg 99.1 Washington DC, Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121 and around the world on bloombergradio.com and the Bloomberg Business App.

John Tucker (1:02)

Hi, everybody, I'm John Tucker. Let's start today's program with US mortgage rates. The mortgage rates climbing for a sixth straight week to an almost three-year high. The contact rate on a 30-year fix rising to 7.3%. That's the highest since November of 2023 For more, we're joined by Erika Edelberg, Bloomberg Intelligence Chief Mortgage Back Securities Strategist. That's quite a title.

What is the state of housing? More importantly, how mortgages are dictating what's happening at the housing market right now?

Erika Edelberg (1:36)

Hi. Thanks for asking me to join today.

Yeah. Mortgage rates are definitely getting to that point where they become unaffordable for a pretty wide swath of Americans right now. And also refinancings have gone completely out of the money. A lot of people who may have bought mortgages, bought homes in the past few years, hoping to refinance, are pretty out of luck right now. But it's interesting you mentioned the arm rate, because actually we are seeing an increasing number of borrowers, up to 10% of FHA borrowers, up to like 12% overall, go into adjustable rate mortgages as an alternative.

John Tucker (2:13)

But that's not exactly a bargain either, and you open yourself up to all sorts of risks, should rates go even higher.

Erika Edelberg (2:21)

Yeah. I mean, the one thing that makes these types of arms a little bit different than the ones we had, let's say, before the financial crisis, is you do have a pretty strong fixed rate period of about five years for most of these, or even longer for some of the conventional ones, and you have to-

John Tucker (2:37)

Now, how long does a person typically stay in their house?

Erika Edelberg (2:40)

I think the average time is typically about seven years, but that's going out right now with all these people locked into low rate mortgages that they took out during the pandemic. So I wouldn't expect that to-

John Tucker (2:50)

3.2% over here, they're going to bury me in my basement.

Erika Edelberg (2:53)

Yeah, we're expecting that to kind of continue, because not only do people buy homes during that period, a lot of people did, but a lot of people refinanced into those low rates. So that's kind of extending the tenure in homes.

Actually, as long as we're mentioning that, some of these people who may be taking out loans more recently for the hybrids, may have, if they took out the 3-1 variety, may already be coming due to a reset rate. But as I said, most borrowers do have to qualify, especially in the conventional space, like Fannie Freddie and banks, at a higher rate, assuming at least one reset upwards. Whether or not they can is another question, but that was where they qualified, as opposed to back before the financial crisis, when these were much shorter reset arms, and you didn't necessarily have to qualify, assuming that rates would go up.

John Tucker (3:47)

If you follow this market, you have to be something of an economist. We had data, the unemployment data, the jobs data that we got on Friday, that indicated it was a little weaker than expected. So that tells us the Federal Reserve, with respect to interest rates, may not have to hike as much as some thought. And that's going to impact the market.

Erika Edelberg (4:10)

Yeah, well, one of the reasons, just taking a step back, one of the reasons that rates have gone up, of course, is because, especially since the start of the Iran War, inflation's been a big concern for global economists, especially US economists and the Federal Reserve. So they did implement their first hike this year, since 2023, when at the beginning of the year, actually, they were expected to cut rates, because it was assumed that inflation was trending towards their desired target. So as a result, with hikes now being priced in the market, that in turn, even though they don't directly control interest rates for mortgages, that did pressure rates higher.