As
HousingWire
Lead
Analyst
Logan
Mohtashami
pointed
out
earlier
this
week,
spreads
between
10-year
Treasury
rates
and
30-year
mortgage
rates
have

come
down
significantly
over
the
past
two
years.

Vishal
Garg,
CEO
of
digital
lender

Better.com,
said
in
an
email
interview
with
HousingWire
that
it’s
a
“big
deal”
for
spreads
to
compress
as
the
Fed
has
yet
to
reach
a
neutral
policy
rate
despite
a
string
of
small
cuts
that

stretch
back
more
than
a
year.

“We’ve
already
started
seeing
a
pickup
in
consumer
engagement
and
lock
volume
at
Better.com
as
rates
have
moved
lower,”
Garg
said.
“With
a
Fed
that’s
back
in
the
MBS
market,
we
expect
pricing
to
get
more
competitive,
especially
for
conforming
loans.”

Fed
policy
moves

Garg’s
comments
referred
to
the
Fed’s
decision
in
late
October
to
begin

winding
down
its
quantitative
tightening
(QT)
efforts
this
month.

The
central
bank
began
rolling
over
its
principal
payments
from
its
Treasury
securities
holdings
that
matured
in
October
and
November
beyond
a
monthly
cap
of
$5
billion.
And
it’s
now
reinvesting
principal
payments
from
its
portfolio
of
agency
debt
and
agency
mortgage-backed
securities
(MBS)
received
during
the
same
two
months
that
exceed
$35
billion
per
month.

“The
Fed’s
decision
to
end
QT
and
begin
reinvesting
MBS
proceeds
is
a
meaningful
tailwind
for
the
mortgage
market,”
Garg
said.
“Even
though
spreads
have
come
down
from
their
peak,
they’re
still
well
above
historical
norms,
hovering
around
200
to
225
basis
points
versus
a
long-term
average
closer
to
150.
The
Fed’s
re-entry
as
a
buyer
can
help
close
that
gap.”

While
the
current
Fed
leadership
under

Powell
has
taken
a
conservative
stance
on
the
speed
and
frequency
of
rate
cuts,
that
could
change
later
in
2026
once
a

new
Fed
chair
is
installed.

President
Donald
Trump
has
made

no
secret
of
his
desire
for
much
lower
interest
rates.
And
a
decline
of
200
bps
in
the
federal
funds
rate,
for
example,
could
be
“transformative
for
the
mortgage
market,”
according
to
Garg.

“There
are
approximately
20%
of
Americans
with
loans
above
6%,”
he
said.
“A
drop
like
that
would
make
refinancing
a
no-brainer,
saving
families
$300
to
$500
a
month
in
many
cases.

“For
new
buyers,
it
would
dramatically
improve
affordability
and
unlock
pent-up
demand
from
the
million
who’ve
been
priced
out
of
the
market
during
this
high-rate
cycle.”

Interest
rate
traders
remain
highly
confident
that
the
Fed
will
issue
a
third
straight
cut
to
benchmark
rates
on
Wednesday.
The


CME
Group’s
FedWatch
tool
on
Tuesday
showed
90%
odds
of
25-bps
cut.
But
looking
ahead
to
January,
70%
say
the
cuts
will
be
put
on
hold.

“The
Fed
still
lacks
official
October
and
November
employment
data,
but
September’s
jobless
rate
of
4.44
percent
already
sits
above
the
Committee’s
central
range
for
‘maximum
employment,’
underscoring
a
softening
labor
market,”

First
American
senior
economist
Sam
Williamson
said.

“Should
the
Committee
cut
as
expected,
the
decision
is
likely
to
garner
multiple

dissents
—
possibly
in
both
directions
—
as
an
increasingly
divided
Fed
weighs
upside

inflation
risks
against
rising

employment
concerns.”

Housing
market
impacts

This
week’s

Housing
Market
Tracker
shows
that
pending
home
sales
continue
to
run
higher
compared
to
this
time
last
year,
while
demand
for
purchase
mortgages
has
peaked
at
its
highest
rate
in
three
years.

Home-price
appreciation
has
slowed
too,
which
has
impacted
monthly
mortgage
payments.
October
data
from
the

Mortgage
Bankers
Association
showed
that
homebuyer
affordability

improved
for
a
fifth
straight
month
as
the
median
monthly
payment
of
$2,039
among
purchase
applicants
was
$88
lower
than
a
year
ago.

“Housing
affordability
is
finally
moving
in
the
right
direction,
with
several
consecutive
months
of
year-over-year
improvement
as
home-price
gains
cool,
incomes
rise
faster
than
prices,
and
rates
ease
at
the
margins,”
Williamson
said.

“Taken
together,
these
forces
point
to
a
measured,
but
persistent,
recovery
in
buying
power
through
next
year
—
even
if
mortgage
rates
don’t
decline
meaningfully.”

Garg
said
that
stable
home-price
growth
is
helping
more
consumers
to
reengage
with
the
housing
market.
Better
is
seeing
benefits
for
first-time
buyers
and
move-up
buyers
in
markets
like

Texas,

Florida,
Georgia
and
the
Carolinas
—
areas
where
home
prices,
for-sale
inventory
and
job
growth
trends
are
favorable.

Refinance
opportunities
are
also
likely
to
appear
more
frequently
as
rates
gradually
move
lower,
and
Garg
said
that
his
company
is
prepared
to

recapture
many
of
its
current
clients.

“Recapture
is
everything
in
a
refi
market,
and
the
window
to
win
that
borrower
is
shockingly
short,”
he
said.
“Once
rates
drop
into
the
money,
most
borrowers
who
refinance
will
do
it
within
two
to
four
weeks
of
realizing
they
can
save.

“If
you’re
not
the
first
lender
to
show
them
their
personalized
savings
and
deliver
the
speed
needed
to
help
them
begin
saving
before
their
next
mortgage
payment,
you’ve
already
lost.”