The Mortgage Spread Is Dead — What Happens to Mortgage Rates Next?

Mortgage Rates, AI, Inflation, and the Economy Heading Into Q4 The economy continues to show underlying strength even as mortgage rates remain elevated, inflation stays above the Federal Reserve’s target, and uncertainty around oil, geopolitics, and the bond market weighs on financial markets. From Huntington Beach and Catalina Island, KP breaks down the latest economic data, mortgage spreads, Treasury yields, AI investment, inflation, jobs, credit, and the forces shaping mortgage rates heading into Q4 and 2027. KP starts with the economy and the growing influence of AI and hyperscaler data center investment. He explains why current GDP strength may be increasingly connected to the AI build-out and discusses how businesses are using the seasonal slowdown to invest in people, technology, and strategies for 2027. He then examines the mortgage spread and why the traditional buffer between the 10-year Treasury yield and the 30-year fixed mortgage has effectively disappeared. With the 10-year Treasury around 5.25%, KP explains why mortgage rates have been moving almost one-for-one with Treasury yields and what could happen if yields reverse lower. The conversation also explores oil and diesel prices, the Iran conflict, global petroleum reserves, and the potential impact of energy prices on inflation and Treasury yields. KP discusses changing oil demand, strategic petroleum reserves, and why prices could remain elevated. KP also dives into core PCE, headline PCE, JOLTS job openings, consumer sentiment, and the labor market. He explains why inflation is showing signs of moderation while remaining above the Fed’s 2% target and why the labor market continues to show underlying strength despite some softening. The episode also looks at AI’s potential to transform productivity, moving from chatbots to copilots and AI teammates. KP discusses the potential deflationary impact of AI and why increased productivity could change how we think about interest rates and the economy. KP also examines credit card delinquencies, credit scoring modernization, FICO 10T, bi-merge, appraisal updates, and the future of mortgage lending. Episode Highlights: 00:00 – The economy, AI, and hyperscaler data centers 00:25 – KP reports from Huntington Beach 00:40 – Retail leadership and preparing for 2027 01:04 – Tactical strategies for mortgage originators 01:27 – Investing in people and technology 01:48 – AI, Jane.ai, Capacity, and LEO 02:10 – The 10-year Treasury and mortgage rates 02:20 – Why the mortgage spread is effectively dead 03:00 – Treasury yields and 30-year mortgage rates 03:32 – Oil prices, Iran, and petroleum reserves 04:40 – Diesel prices and the economy 05:00 – AI, hyperscalers, and economic strength 05:40 – Weather, oil demand, and inflation 06:00 – Oil, Treasury yields, and mortgage rates 06:15 – PCE inflation and the jobs report 06:20 – JOLTS and labor-market strength 06:40 – Consumer sentiment and inflation 07:40 – Leadership, rates, and the Q4 outlook 08:40 – AI’s impact on mortgage lending 09:00 – From chatbots to copilots to AI teammates 09:20 – AI productivity and the potential 95/5 economy 09:48 – Core PCE comes in below expectations 10:40 – CPI, PCE, and inflation adjustments 11:00 – High-bandwidth memory and AI-related inflation 12:00 – PCE and the Fed’s outlook 12:20 – October Fed meeting and rate expectations 12:40 – Treasury markets, diesel, and geopolitical risk 13:20 – Why the mortgage spread remains under pressure 14:00 – AI productivity, the yield curve, and deflation 14:49 – Credit card delinquencies and economic strength 15:20 – Appraisals and credit scoring updates 15:40 – FICO 10T and mortgage credit scoring 16:00 – FHFA, credit quality, and lending models KP takes a closer look at the forces shaping mortgage rates, inflation, Treasury yields, housing, AI, and the broader economy. From the mortgage spread and oil prices to AI-driven productivity, PCE inflation, labor-market strength, credit card delinquencies, and credit scoring modernization, this episode examines the data behind the headlines and what mortgage professionals should be watching as Q4 gets underway. Follow for more updates: https://linktr.ee/kptalksdollarsandsense #KPTalksDollarsAndSense #MortgageRates #HousingMarket #Inflation #Economy #MortgageMarket #BondMarket #Treasury #PCE #InterestRates #AI #ArtificialIntelligence #MortgageLending #CreditScoring #FICO10T #EconomicData #FinancialMarkets #OilPrices #Jobs #FederalReserve