How low will U.S. mortgage rates go?

Investing.com -- Evercore ISI analyst Stephen Kim told investors in a note this week that investors may be getting ahead of themselves after a sharp drop in U.S. mortgage rates triggered by President Trump’s decision to have Fannie Mae and Freddie Mac purchase $200 billion in mortgage-backed securities.

The announcement led to a “15bps drop in MBS yields” and pushed the average mortgage rate to 6.0%, according to Freddie Mac’s weekly survey.

The move sparked speculation that borrowing costs could fall much further.

Evercore ISI noted that Mortgage News Daily suggested the MBS purchases alone “could drive a 50bps drop in rates.”

More housing-related actions are expected when the president speaks at Davos next week, adding to investor optimism.

But Evercore ISI urged caution. Kim said it is “not our custom to make strong predictions” on rates, but warned that investors “could now be overestimating how low borrowing costs will go in the near-term.”

According to the note, mortgage rates “appear to be already pricing in the potential for additional good news at Davos,” and the path to materially lower rates “is more complicated.”

The analyst also said the administration’s strategy is likely to involve more than lowering mortgage rates.

“We believe they also intend to increase housing supply, and this could come through influencing public builders to build more homes than they would otherwise want to and to invest in growth rather than returning cash to shareholders,” wrote Kim. “Neither would be particularly encouraging for investors.”

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