Tag: federal reserve (Page 1 of 4)

The Lending Coach 2026 Forecast: A Deeper Look at the Economy, Rates, and Real Estate

January 9, 2026 / Tom Bonetto / 0 Comments

As each year comes to a close, homeowners, buyers, and real estate professionals naturally start looking ahead. The questions are familiar — but the stakes always feel higher.

Where is the economy headed?
Will mortgage rates finally come down?
What does all of this mean for home prices and opportunity in real estate?

Let’s walk step by step through the key forces shaping the year ahead.

Rather than focusing on headlines or short-term noise, this outlook looks at the underlying drivers that influence interest rates, housing demand, and long-term opportunity.

1. The Economics: Inflation, Employment, and the Foundation of the Market

Economic conditions sit at the core of every housing and mortgage decision.

Inflation, employment, and consumer behavior all feed directly into interest rates — and ultimately affordability.

At first glance, inflation appears stubbornly above the Federal Reserve’s 2% target. However, a deeper look shows that inflation is meaningfully overstated, primarily due to how shelter costs are calculated.

Housing inflation is reported with long delays. Government agencies only survey a portion of the country each month, and rent data often reflects lease agreements signed many months earlier.

Meanwhile, real-time data sources show rents declining across much of the country — a trend that has not yet been fully captured in official inflation reports.

Shelter costs carry enormous weight in inflation metrics:

More than one-third of headline CPI
Nearly half of core CPI

This means even small delays or distortions in housing data can significantly skew inflation readings. When adjusted for these delays — along with temporary factors like tariffs and portfolio fee calculations — true inflation appears much closer to the Fed’s target than reported figures suggest.

In fact, today’s Truflation number is right at 2% as of this writing. More on that here…

At the same time, the labor market is clearly weakening. Job openings have steadily declined, private payroll data has shown multiple months of job losses, and unemployment continues to trend higher.

Initial jobless claims may appear low, but they no longer tell the full story. In today’s gig-based economy, many displaced workers turn to alternative income sources rather than filing unemployment claims — which understates the true level of labor market stress.

The economic takeaway:
Inflation is cooling faster than headlines suggest, while employment conditions are deteriorating — a combination that historically leads to lower interest rates and policy intervention.

2. The Federal Reserve: Policy Direction and the Shift Toward Rate Cuts

The Federal Reserve operates under a dual mandate: controlling inflation and maintaining maximum employment.

As inflation pressures ease and labor weakness becomes harder to ignore, the Fed’s priorities naturally begin to shift.

Looking ahead to 2026, several important factors suggest a more accommodative Fed:

A voting composition that leans more dovish
Rising unemployment
Inflation readings that continue to drift lower as shelter data catches up

While most forecasts call for minimal rate cuts in 2026, I actually anticipate a more proactive response. My outlook calls for three quarter-point cuts, bringing the Fed Funds rate down to approximately 2.875%.

This expectation is based on two key assumptions:

Inflation is less threatening than official numbers suggest
The labor market is weaker than widely acknowledged

When those realities become undeniable, the Fed historically acts to prevent deeper economic damage.

Why this matters:
Although the Fed does not directly set mortgage rates, its policy decisions heavily influence bond markets, investor confidence, and the cost of borrowing across the economy — all of which feed into mortgage pricing.

3. Mortgage Rates: Understanding the Path to Lower Borrowing Costs

Mortgage rates are primarily driven by two components:

The 10-year Treasury yield
The spread between Treasury yields and mortgage-backed securities

For 2026, I project the 10-year Treasury reaching a low near 3.85%, supported by:

Slowing economic growth
Lower inflation expectations
Fed rate cuts
Increased demand for bonds

In recent years, mortgage rate spreads widened significantly due to volatility, uncertainty, and reduced demand for mortgage-backed securities. As market confidence improves, these spreads are expected to normalize toward historical ranges.

Historically, mortgage spreads typically fall between 1.6% and 2.0%. While current levels remain elevated, continued normalization could place spreads closer to the middle of that range.

Combining these factors:

A 10-year Treasury near 3.85%
A spread near 1.9%

This supports a projected 30-year fixed mortgage rate around 5.75%, with the potential to move closer to 5.625% if conditions improve further.

For homeowners and buyers:
Lower rates improve affordability, unlock refinancing opportunities, and act as a catalyst for increased housing activity.

4. Real Estate: Supply, Demand, and the Return of Buyer Activity

Housing demand has cooled sharply in response to higher mortgage rates, but this decline should not be confused with a lack of interest in homeownership.

Instead, the market is experiencing pent-up demand — buyers who are financially ready but waiting for affordability to improve.

At the same time, housing supply remains constrained:

Builders have reduced new construction to match slower demand
Inventory remains below pre-pandemic levels when adjusted for population growth
Active listings have risen from historic lows but are now beginning to flatten

As mortgage rates ease, demand is expected to return faster than supply can respond. Builders cannot ramp up production overnight, and existing homeowners remain hesitant to sell unless affordability improves.

This imbalance supports:

Increased transaction volume
Stabilizing inventory
Continued upward pressure on home prices

While appreciation will vary by market, the national picture suggests a return to more typical, sustainable growth rather than the extremes of recent years.

5. The Lending Coach Forecast: What 2026 May Bring

Based on economic trends, policy expectations, and housing fundamentals, my 2026 forecast includes:

Unemployment: Rising toward 4.8%, potentially higher
Core Inflation: Around 2.5%, with true inflation likely closer to 2%
Fed Funds Rate: Approximately 2.875%
Mortgage Rates: A low near 5.75%, with potential to reach 5.625%
Home Price Appreciation: Approximately 3% nationally

These figures represent national averages. Local market conditions — such as job growth, migration, and housing supply — will determine individual outcomes.

Final Thoughts: Strategy Matters More Than Timing

The outlook for 2026 suggests a market transitioning toward greater balance — one where opportunity exists, but smart planning matters more than speculation.

For buyers, lower rates may finally restore affordability.
For homeowners, refinancing opportunities could reemerge.
For long-term investors, steady appreciation continues to support real estate as a wealth-building tool.

a person giving a bundle of keys to another person

Understanding how the economy, Federal Reserve policy, mortgage rates, and housing supply interact allows you to make decisions with confidence — not emotion.

The most successful moves in real estate are rarely about reacting quickly. They’re about preparing thoughtfully and acting when the conditions align.

If you’d like help translating this outlook into a personalized strategy, a focused conversation can help clarify next steps — based on your goals, timeline, and financial picture.

Do reach out directly to me to begin crafting your plan!

As always, you can set up an appointment with me here…

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Starlight Mortgage. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Fannie Mae and Freddie Mac Reforms – A Podcast: Affordable Housing Ideas from Two Loan Originators

December 2, 2025 / Tom Bonetto

I recently sat down with Mike Nelson, a mortgage originator and host of the Mosaic Podcast.

We discussed some ideas that should be debated at the government levels regarding interest rates and home affordability.

I’d invite you to take a listen!

Here’s the link…

Specific Podcast Timestamps:

1:05 – Introduction
2:38 – Setting the Stage
5:02 – Ideas for Reform: Debt-to-Income and Residual Income
9:02 – The Importance of the Credit Score and Asset Utilization
12:12 – Over Regulation and Costs Associated with them
19:30 – Loan Level Price Adjustments Causing Rate Increases (2^nd homes/investment properties)
24:21 – 401(k) Utilization Without Penalty for Home Purchases/Gifts
25:28 – ‘Streamline’ Refinances for Conventional Borrowers
27:00 – Non-QM versus QM
29:00 – Government Debt and How It Impacts Mortgage Rates
32:19 – Is Real Estate Still a Good Investment?
33:55 – The Federal Reserve and The Data
37:00 – Final Thoughts

I hope you find it interesting, and feel free to reach out directly to me to discuss it further.

As always, you can set up an appointment with me here…

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Mortgage Rates Jump After the Fed’s Rate Cut — Here’s Why

November 3, 2025 / Tom Bonetto

If you’ve heard that the Fed cut interest rates and wondered why mortgage rates rose instead of fell, you’re not alone.

It’s one of the most common misunderstandings in the market—and last week’s Fed meeting was a perfect example of why that happens.

The Federal Reserve lowered its benchmark rate by 0.25%, and also announced the end of quantitative tightening (QT)—its long-running effort to reduce bond holdings.

Both moves were widely expected, and neither created a big market reaction on their own.

But when Fed Chair Jerome Powell spoke during his press conference, he made it clear that another rate cut in December was not guaranteed.

When asked about a rate cut in December, Powell stated “it’s not a foregone conclusion – far from it.”

That comment alone shifted market expectations, sending Treasury yields and mortgage rates higher within hours.

Why Mortgage Rates React Differently

Mortgage rates don’t move directly with the Fed’s rate changes. Instead, they follow the bond market, which constantly adjusts based on what investors expect the Fed will do next.

When Powell signaled uncertainty about future cuts, bond traders adjusted those expectations upward—pricing in fewer rate reductions ahead.

That caused bond prices to fall and yields (and mortgage rates) to rise.

In short:

The Fed’s current rate cut = already expected.
Powell’s tone about the future = what moved rates higher.

As a result, the average 30-year fixed rose back to levels last seen in mid-October, even though it remains lower than most of the past year.

What’s Next for Mortgage Rates

With the Fed now taking a more cautious approach, the market’s focus shifts back to the economic data that’s been delayed by the government shutdown.

Upcoming reports on jobs and inflation will likely set the tone for where rates go next.

If those reports show inflation cooling or job growth slowing, we could see another move lower in bond yields—and, eventually, mortgage rates. But until that happens, expect volatility to continue around Fed commentary and inflation data.

What This Means for Homebuyers

Even though rates ticked up after the Fed meeting, they’re still hovering near some of the lowest levels in the past year.

For buyers and homeowners considering refinancing, this period remains one of the most favorable we’ve seen since 2022.

Here’s what to do now:

Lock in a rate if you’re under contract or close to applying.
Stay informed—the next inflation report could open another window of opportunity.
Plan ahead—today’s movement shows how quickly markets react to Fed comments.

Reach out to me today to discuss your current situation and to make sure you are not missing out. I’d be happy work with you and explore options.

If it’s easier, you can schedule a call with me here…

Mortgage Rates Over the Past Three Weeks: What’s Changed

October 14, 2025 / Tom Bonetto

orange calculator beside the black smartphone

Over roughly the last three weeks, U.S. mortgage rates have edged downward, reaching their lowest levels in about a year.

According to Freddie Mac’s most recent data, the average 30-year fixed mortgage rate fell to 6.30 % from 6.34 %.

This decline is modest, but meaningful in the current interest rate environment — especially given how tightly rates have been trading lately.

In prior weeks, there was also a rebound in rates: for example, the week ending October 2 saw average rates rise from 6.30 % to 6.34 %, as Treasury yields ticked upward.

But the recent movement has tilted downward again, amid growing caution about economic strength.

Recent Months to Today

As of October 14, 2025, the average 30-year fixed mortgage rate stood at 6.30 % — down from 6.34 % the prior week.
Over the past several weeks, rates have settled in their lowest band in roughly a year.
Earlier in 2025, rates were higher — in many places above 6.8 % or even close to 7.0 % for conforming loans, depending on timing and market conditions.
Looking back further, we see that since 1971, the long-term average 30-year fixed rate is about 7.71 % (through 2025)
In other words, current rates are still below that historical average, though far from the ultra-low rates seen in the 2010s and early 2020s.

Why Rates Are Moving: Key Drivers

To understand why mortgage rates have shifted, it helps to zoom out and see the levers that push long-term borrowing costs:

1. Treasury yields & the bond market

roll of american dollar banknotes tightened with band

Mortgage rates are closely linked to longer-term Treasury yields (especially the 10-year). When investors buy Treasurys, yields fall; when they sell, yields rise. Mortgage lenders price based on these benchmarks.

In recent weeks, Treasury yields have shown some softness, reflecting investor appetite for safer assets amid economic uncertainty. That downward pressure on yields helps bring mortgage rates lower.

2. Economic data & inflation

Every inflation report, employment release, and GDP update can swing expectations about future interest rates. If inflation shows signs of sticking higher, markets will demand higher yields (and mortgage rates) to compensate.

Conversely, weak jobs or growth data can boost expectations of rate cuts and push long yields lower.

In recent weeks, signs of softening in labor markets have grown more pronounced, which has helped ease rate pressures.

3. Federal Reserve policy expectations

The Fed doesn’t set mortgage rates directly—but its policy decisions and forward guidance are central to rate expectations. Markets are watching how many cuts the Fed will enact in 2025 (and how fast) and how strongly it will resist inflation.

Recently, the Fed has signaled caution, acknowledging that inflation risks remain. But weaker labor data may give it more room to ease.

4. Supply, demand & housing market sentiment

Mortgage rate movement also reacts to credit demand, lender competition, and overall confidence in the housing market. As rates dip, some borrowers respond quickly with refinance or purchase activity. That can feed back into pricing dynamics.

In fact, even small rate reductions lately have triggered increases in refinancing inquiries.

Also, broader uncertainties — such as the current U.S. government shutdown — create additional caution in markets, which can tilt toward lower yields (and lower mortgage rates).

What to Watch Next: Forward Outlook & Risks

Given where we are, here’s what I see as the main potential paths forward — and what borrowers should watch for.

Base Case: Modest Further Decline or Plateau

Most forecasts expect mortgage rates to stay where they are or possibly drift modestly lower through late 2025. For example, Fannie Mae recently revised its year-end expectation to 6.4 %, and 2026 to ~6.0 %.

Other analysts believe rates will more or less stay in the 6.2 %–6.6 % range through year-end, depending on economic data.
If inflation continues to ease and labor markets soften, bond yields could fall further, dragging mortgage rates down with them.

Upside Risk: Rates Could Rise

If inflation surprises to the upside, markets could push yields (and thus mortgage rates) higher.
Strong economic data — especially in jobs, consumer spending, or corporate profits — could make the Fed more reluctant to cut or even force it to reconsider policy tightening, which would ripple through longer-term yields.
Global or fiscal surprises (e.g. government shutdowns, debt ceiling worries, geopolitical events) can trigger volatility in bond markets, pushing rates upward.

Final Takeaways for Borrowers & Homebuyers

It’s not a dramatic rate cut that is in play — the recent moves are incremental. But every basis point matters when you’re financing a large amount.

If you’re in the market now and your numbers make sense, don’t wait on “perfect” rates. Locking something in is often better than trying to time the bottom.

Also, do keep a close eye on inflation numbers, payrolls/unemployment data, and Fed communications. These will be the levers moving rates in the coming weeks.

Finally, for clients who are refinancing or planning purchases in 2025, building in some “wiggle room” (i.e. rate buffers) is prudent given the potential volatility.

Reach out to me today to discuss your current situation and to make sure you are not missing out. I’d be happy work with you and explore options.

If it’s easier, you can schedule a call with me here…

Have Recent Fed Cuts Caused Mortgage Rates to Rise?

September 25, 2025 / Tom Bonetto

As we have seen over the last few days, mortgage rates and bonds have actually worsened since the Federal Reserve cut their Federal Funds rate on September 17^th.

a red paper bag in the middle of red balloons with percentage symbols

Markets, including longer-term treasuries and mortgage rates, are forward-looking and often price in a Fed rate cut in advance of the actual Fed cut, once it has been clearly telegraphed.

I’ve read many articles recently that fall into the trap of disregarding the forward-looking nature of the market by measuring the effect of a Fed rate cut on longer-term rates and mortgage rates from the date of the cut.

More importantly, there are coincident economic reports that can greatly influence the move in interest rates subsequent to the cut.

The September 17^th Cut

Let’s look at a few examples. Most recently, the Fed cut rates on September 17 and the 10-year Treasury touched at 3.99% that day. Yields have risen since then to 4.17% (as of today), and a large contributing factor was the sudden drop in initial jobless claims on September 18 – the morning after the Fed cut rates.

The Fed’s rational for cutting rates, even though Core Personal Consumption Expenditures (PCE) is above their target, was because they were concerned about weakness in the labor market.

But initial claims showed a drop from 264K in the previous read to 231K. This significant drop, to some degree, is contrary to a weakening labor market, and didn’t support the Fed’s reasoning for cutting rates.

Prior to the Cut

Now let’s look at what happened before the most recent Fed cut on September 17. During his Jackson Hole speech on August 22, Chair Jerome Powell clearly telegraphed that a rate cut was coming. This was when the bond market started to react.

The day of the Jackson Hole speech by Powell, the 10-year Treasury was at 4.32%. By the time of the actual cut on September 17, the 10-year Treasury had dropped by over 25bp.

Additionally, mortgage rates dropped even more, thanks to a narrowing mortgage spread. So, looking at the change in rates after the Fed actually cuts ignores the market’s anticipation of the cut and leads to false narratives.

Recent History

There is a lot of historical precedent for this as well. Look no further than the Fed’s 50bp rate cut on September 18, 2024. The chart below paints a very clear picture.

In the two to three weeks prior to the actual cut, the 10-year Treasury made a significant drop in yield, and mortgage rates declined by a whopping 5/8%. Again, markets are forward-looking.

Subsequent to the Fed cut, mortgage rates and Treasuries remained stable until October 4, when the September 2024 jobs report was released. There was a huge upside surprise in job creations totaling 254K, which sent the bond market into a selloff.

We now know, from the QCEW, that it is likely that less than half of those jobs were actually created.

This is why we need to dig more deeply, and not only contemplate the market’s anticipation, but consider what factors caused interest rates to move subsequent to the Fed rate cut. Had the jobs number been less than market expectations, it’s highly likely that interest rates would have declined.

And the same story applied to the next rate cut on November 7, 2024. The chart below shows that mortgage rates were declining until another upside surprise in the job numbers released in early December caused them to bump higher. And this happened yet again after the December 18, 2024 cut.

Long Term History

Now, let’s gain a more historical perspective. As you can see over the long run, there is a reasonably good correlation between the direction of the Fed Funds Rate and mortgage.

We also need to look at what the Fed is leaning towards in their upcoming meetings The “Dot Plot” system is the Fed’s way of giving the public a snapshot of how its policymakers see the future path of interest rates, but it’s always subject to change as the economy evolves.

I don’t recall a more divided Fed with such wide disparities in opinion. Future Fed rate cuts this year hang tenuously on continued labor weakness. Therefore, strength in the labor market would likely take the expected two additional rate cuts through the end of 2025 off the table.

This puts enormous focus on the outcome of the September jobs report, which is set to be released on October 3. This will ultimately decide the direction of Fed cuts at their upcoming meetings.

All that said, another factor which must be contemplated is the market’s interpretation of whether a Fed rate cut could be too stimulative to the economy, bringing on an increase in inflationary pressures.

In Conclusion

As shown above, there are many factors that go into the reaction mortgage rates have to Fed rate cuts.

So, to simply state that mortgage rates and long-term Treasury yields rise when the Fed cuts rates is not only myopic, but a fool’s game, as it fails the deep thinking required to correctly analyze all the above considered.