You might be curious about the mortgage rates’ future if you monitor them because you are aware of how they affect your borrowing costs. Given how difficult it is to predict mortgage rates, there is sadly no simple way to respond to that question. .
However, there is one factor that has historically been a reliable predictor of future rate movements, and that is the correlation between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. The graph below displays those two metrics ever since Freddie Mac began compiling data on mortgage rates in 1972:
The graph demonstrates that historically, over the previous 50 years, the difference between the two was, on average, 1 point 72 percentage points, or 172 basis points. When the Treasury Yield trends upward, as shown by the trend line, mortgage rates typically follow suit. Additionally, mortgage rates typically increase when the Yield declines. Although they typically follow each other in this manner, the difference between the two has remained constant for a long time at around 1 point 72 percentage points.
However, it’s important to note that the spread has recently been expanding significantly beyond the norm (see graph below):
If you’re wondering what’s driving the spread beyond its typical average, it’s mainly because of uncertainty in the financial markets. Mortgage rates and a widening spread are being influenced by a number of factors, including inflation, other economic drivers, Federal Reserve policy (The Fed), and decisions.
Why Is This Important to You?
This may seem overly intricate and technical, but homebuyers like you should understand the spread for the following reasons. It implies that, based on the typical historical difference between the two, there is room for mortgage rates to rise at the moment.
And, according to experts, that is what is to come as long as inflation stays low.
As First American‘s Deputy Chief Economist Odeta Kushi 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 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.”
Keep track of mortgage rate developments and what analysts predict will happen in the upcoming months if you’re a first-time home buyer or an existing homeowner considering moving into a home that better suits your current needs.
