How Kalshi, Polymarket bets on mortgage rates are being watched by lenders

Will mortgage rates go higher this year? You can bet on it. 

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Predictions market platforms Kalshi and Polymarket now feature nascent trading on where the 30-year fixed-rate mortgage will move this year. Anonymous traders have placed tens of thousands of dollars so far between the competing sites on “yes” or “no” contracts against other users regarding specific rate movements. 

Both sites track Freddie Mac’s weekly survey, and recent rate dips have already settled some bets. Kalshi’s market, which opened in January, simply asks how high rates will go and counts over $16,000 in trading volume. Polymarket’s trading opened in early February and as of March 6 shows less than a thousand dollars in trading for a wider range of yes-or-no events, for rates to soar past 7% or dive under 5.5%.

That volume is a fraction of the millions of dollars at stake in events like the next Federal Reserve rate move, or the future price of Bitcoin. Polymarket also shows minimal trading activity on new markets regarding upcoming median home price values in various cities.

Industry experts said they’re intrigued with the 30-year FRM bets, and weighed their potential as a hedging tool. They’re more skeptical, however, that the trading akin to gambling will have a meaningful impact on lending. 

“I think it’s a really good reflection of borrower sentiment,” said Kristin Ankeny Bickenbach, executive vice president of secondary marketing at New American Funding. “But I don’t think it goes so far to say that a prediction market is going to have any impact on the actual rates themselves.”

A useful tool?

Mortgage sources who spoke with National Mortgage News emphasized that lenders already have institutional-grade tools to gauge mortgage rate moves, including the enormously liquid mortgage-backed securities market. 

Mike Fratantoni, chief economist and senior vice president at the Mortgage Bankers Association, said the trade group hasn’t yet considered the prediction markets, although he appreciates the additional information. Still, the TBA market for MBS is a key indicator. 

“I’m imagining that these prediction markets have nowhere close to that level of trading,” he said. “So I think it’s going to be a less valuable signal than we already have.”

The MBA and Fannie Mae also publish their own mortgage rate forecasts and lenders have a bevy of tools to assess rate moves, such as the Federal Open Market Committee’s dot plot. 

Kalshi and Polymarket as a hedge

Fratantoni and others emphasized the existing infrastructure in which market players already execute their hedging strategies. The prediction platforms aren’t serious competition, yet.

NAF’s Ankeny Bickenbach views Kalshi and Polymarket as legalized gambling platforms rather than equity exchanges, although she clarified she’s not critical of them. Rather, she doesn’t see a scenario where such bets would be advantageous, unless there was a significant price yield. 

“You’d have to put a pretty big position there,” she said. “And I don’t know an individual person’s risk tolerance, but to me, it’s something that would be a little outsized.”

Consumers also aren’t likely to get a level of protection from Kalshi and Polymarket 30-year FRM trades that would be competitive with a lender’s low-cost, or no-cost, rate lock, explained Fratantoni. 

Will lenders and buyers take them seriously?

Josip Rupena, founder and CEO of crypto mortgage lender Milo, doesn’t see a use case for his business to dabble in the prediction markets. He said he anticipates more exotic products that will be made predictive, but raised the question around the viability of trading. 

“Who’s taking the other side of the trade?” He said. “Who’s bringing in liquidity?”

Although Kalshi as of Friday afternoon showed a 22% chance rates would rise above 6.5% this year, there were a few hundred dollars worth of action on the “yes”. A $100 bet on “yes” would net a trader $417. Polymarket at the same time showed a 50% chance rates would climb over 6.5% this year. 

The platforms, regulated by the Commodities Future Trading Commission, emphasize they’re different from gambling, although they’re facing mounting scrutiny from both lawmakers and the media.

Neither the government-sponsored enterprises nor its regulator, the Federal Housing Finance Agency, have appeared to comment or make any guidance around the platforms. The GSEs and FHFA didn’t return requests for comment regarding the new 30-year FRM markets.

Aaron Polk, a broker and owner of Aserta Loans, said he has only heard one client speak of the prediction markets. He anticipated interest to grow via word-of-mouth, similar to Bitcoin’s slow and steady ascension. 

“I think the better indicator is once you start seeing institutional investors getting into this,” he said. “Or if you see retail investors, like you and me, start to put larger dollars into it.”

NAF’s executive said if anything, she appreciates the increased interest in how mortgage rates are moving.

“If it means that Polymarket is what encourages them, then I’m all for an educated populace,” said Ankeny Bickenbach. “The more information and conversation we’re having around what drives mortgage rates, the better.”