If you're keeping an eye on mortgage rates due to their significant influence on your borrowing expenses, you might be curious about their future trajectory. Predicting mortgage rates, however, is no simple task, as they are known for their unpredictability.
Yet, there is a reliable historical indicator that can shed some light on the direction of rates, and that is the correlation between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. To illustrate this relationship, we have included a graph below, presenting the data for both metrics since Freddie Mac began recording mortgage rates in 1972.
The graph demonstrates that over the past 50 years, there has been an average difference of 1.72 percentage points (equivalent to 172 basis points) between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Observing the trend line, it becomes evident that when the Treasury Yield rises, mortgage rates tend to follow suit, and conversely, when the Yield declines, mortgage rates also decrease. This usual correlation has maintained a relatively stable gap of about 1.72 percentage points for a considerable period.
However, it is crucial to take note of a significant development in recent times: the spread between the two rates has been widening well beyond the historical norm, as depicted in the graph below:
If you find yourself wondering why the spread is surpassing its usual average, the primary reason is the prevailing uncertainty in the financial markets. Multiple factors, including inflation, various economic forces, and the policies and decisions of the Federal Reserve (The Fed), are collectively influencing mortgage rates and contributing to the widening spread.
Why Does This Matter for You?
While this might seem like a highly technical and detailed topic, it's crucial for homebuyers like you to grasp the concept of the spread. Understanding it implies that, given the historical difference between the two rates, there is potential for mortgage rates to become more favorable at present.
Experts believe that this is the likely scenario, especially if inflation continues to moderate. As Odeta Kushi, Deputy Chief Economist at First American, elaborates:
“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 says:
“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.”
Bottom Line
Whether you're a first-time homebuyer or a current homeowner considering a move to a property that better suits your current requirements, it's essential to stay informed about the latest developments in mortgage rates and pay attention to expert predictions for the upcoming months. Being aware of these factors can help you make well-informed decisions regarding your housing plans.
Our dedicated real estate agents in The Sycamore Team are not just here to help; we're eager to advise, assist, and wholeheartedly serve you in making your real estate goals a reality. With our unwavering commitment and personalized approach, we're geared up to turn your dreams into tangible success stories. Let's embark on this exciting journey together!
