May Mortgage Outlook: Rates Stable but Braced for Shocks

Mortgage rates are forecast to hold steady in May, with stability hinging on the Iran conflict [1]. A major drop is unlikely, but a spike could follow any resumption of aggressive actions [1]. The ceasefire that began April 8 brought calm to mortgage rates after they rose rapidly in March following the onset of the Iran war [1]. Rates jumped again late in April on headlines about a continuing U.S. naval blockade [1]. Mortgage rates track bond yields, which spiked due to inflation fears sparked by the conflict [1]. While markets became desensitized to Middle East headlines in April, major developments could still move rates [1]. Domestically, the Federal Reserve's stance offers little near-term hope for lower rates [1]. The Fed's last meeting under Chair Jerome Powell concluded April 29 with a decision to hold rates steady, but it featured four dissents—the most in 34 years [1]. Three governors dissented over the inclusion of an 'easing bias' in the official statement, objecting to the word 'additional,' which they argued implied future rate cuts [1]. Powell has stated he will remain as a governor after his term as chair ends, which bars President Trump from appointing a replacement [1]. Kevin Warsh, expected to be confirmed as the next Fed chair, has argued for lower rates due to an AI-driven productivity boom but could face opposition from inflation-wary governors [1]. With the Fed not in a cutting mood, downward pressure on mortgage rates is unlikely [1]. Freddie Mac's average 30-year rate ended the month up 16 basis points [1].