Rising storms and market shifts
This week's chart pack covers the following topics:
Modest decline in US mortgage rates challenges expectations of housing market boom
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart shows consensus forecasts from Blue Chip Economics for the average US mortgage rate over the next six quarters. The blue line represents the mean forecast for each quarter. The grey box highlights the 25th to 75th percentile range, while the green box represents the 10th to 90th percentile range.
Behind the data
Even though the Federal Reserve (Fed) is expected to continue cutting interest rates over the coming quarters, US mortgage rates are projected to decline much more modestly. This is likely because the anticipated Fed Funds rate cuts have already been largely priced into current mortgage rates. As a result, the average mortgage rate is expected to decrease by only 34 basis points from now until the end of Q1 2026.
This forecast contradicts a common narrative in the US housing market, which suggests that decreasing interest rates will spark a new boom in mortgage demand. However, if mortgage rates do not drop significantly, this demand may not materialize as expected.
Term premium poised for upside amid Fed easing and elevated bond volatility
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart illustrates the decomposition of the 10-year US Treasury yield into its components from two perspectives: risk neutrality and term premium, further broken down into breakeven inflation and real yield from 1999 to the present. It also highlights periods of recession during this timeframe.
Behind the data
Considering the periods of relatively high inflation – both before the Global Financial Crisis (GFC) and after the COVID pandemic – recent risk neutrality and inflation expectations appear close to their historical norms. At the same time, long-term real interest rates have already leveled up.
The term premium shows some upside room, as it was positive pre-GFC but has remained flat lately. This upward risk is also reflected in the heightened bond-implied volatility observed in recent years.
Despite the Fed's easing cycle, upward pressure on bond yields could stem from the term premium.
Surge in major hurricanes across the US as climate volatility intensifies
What the chart shows
This chart tracks the number of hurricanes in the US across different five-year time periods from 1855 to the present. The hurricanes are categorized according to the Saffir-Simpson Scale: major hurricanes (Category 3, 4 and 5) and regular hurricanes (Category 1 and 2.) The Y-axis shows the total number of hurricanes in each five-year period.
Behind the data
Hurricane Milton left a trail of destruction across Florida when it made landfall on Wednesday. The Category 5 storm came just two weeks after Hurricane Helene, which also caused widespread destruction and fatalities.
As the chart shows, the rising number of major hurricanes hitting the US since 2020, compared to the previous peak of seven major hurricanes between 1915 and 1919, is notable. With five major hurricanes already recorded this decade, and the National Oceanic & Atmospheric Administration (NOAA) yet to include hurricanes Helene and Milton, the tally will likely set a new record once updated. The increasing frequency of severe hurricanes points to broader patterns of climate volatility, which may be contributing to this trend.
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