Lisa Mailhot | July 19, 2023
Buyers
If you're closely monitoring mortgage rates because of their impact on your borrowing costs, you might be curious about their future trajectory. Unfortunately, predicting mortgage rates is notoriously challenging, making it difficult to provide a definitive answer.
However, there is one factor that historically serves as a reliable indicator for rate movements: the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. To illustrate this, here's a graph depicting these metrics since Freddie Mac began recording mortgage rates in 1972:
The graph demonstrates that historically, the average difference between the two rates over the past five decades has been 1.72 percentage points (also known as 172 basis points). By examining the trend line, it becomes apparent that when the Treasury Yield rises, mortgage rates usually follow suit. Conversely, when the Yield drops, mortgage rates tend to decrease. While they typically move together in this manner, the gap between the two rates has remained around 1.72 percentage points for a considerable period.
However, it's important to note that the spread has recently widened significantly beyond the norm, as depicted in the graph below:
You may wonder what is causing this spread to deviate from its typical average. The primary reason is the uncertainty prevailing in the financial markets. Various factors, including inflation, other economic drivers, and the decisions made by the Federal Reserve (The Fed), all play a role in influencing mortgage rates and widening the spread.
While this information may seem technical and detailed, homebuyers need to grasp the significance of the spread. Based on historical trends, the current gap between the two rates suggests there is room for mortgage rates to improve at present.
Furthermore, experts believe that this improvement is likely to occur as long as inflation continues to moderate. Odeta Kushi, Deputy Chief Economist at First American, explains:
“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal . . . However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”
Similarly, an article from Forbes asserts:
“Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year, barring any unforeseen surprises.”
Whether you're a first-time homebuyer or a current homeowner considering a move to a property that better suits your needs, it's crucial to stay informed about mortgage rates and the predictions offered by experts for the upcoming months. By staying up to date with these developments, you can make more informed decisions regarding your housing plans.
In the aftermath of devastating LA wildfires, State Farm has requested a 22% insurance rate hike in California. Discover how this could impact homeowners, why wildfire… Read more
With rental market growth set to hit $5.35 trillion globally by 2025, investors can boost returns by diversifying portfolios, leveraging tech, and adopting proactive m… Read more
Baby boomers are holding tight to their real estate and assets, delaying the long-anticipated "Great Wealth Transfer." Learn how this affects millennials, Gen Xers, an… Read more
New-home sales defied expectations in December, rising 3.6% despite mortgage rates hovering around 7%. With builders offering incentives and inventory rising, now migh… Read more
As cities struggle with rising rents, micro-units are emerging as a practical solution for affordability and quality living. These compact, well-designed apartments of… Read more
Extreme weather is driving up home insurance premiums, with costs soaring 33% in recent years. Discover how climate risks are reshaping real estate markets, from risin… Read more
Michael Jordan's iconic Highland Park mansion, Champions Point, is now available for co-ownership starting at $1M. This unique opportunity offers luxury amenities, com… Read more
L.A. wildfires in January 2025 have put over $40 billion in real estate at risk, highlighting housing shortages and displacement concerns. Discover how these events im… Read more
Discover five powerful tax-saving strategies that could help you legally save over $20,000 on your taxes. From maximizing retirement contributions to leveraging HSAs a… Read more
Let's find a time that suits you best to chat about your goals, show you how we work, and figure out how we can help you the most