Understanding Today’s Mortgage Interest Rates

You may be wondering about the future of mortgage rates if you are interested in them because they affect your borrowing costs. Mortgage rates are notoriously difficult to predict, so there is no easy answer to this question. There is one thing, however, that has historically been a good indicator for what will happen with rates: the relationship between the 30-Year mortgage rate and the 10-Year Bond Yield. Here’s a chart showing these two metrics since Freddie Mac began keeping mortgage rate records in 1973:As you can see, historically, the spread between the two was 1.72 percentage point (also known as 172 basis points). You can see from the trend line that mortgage rates tend to rise when the Treasury Yield is on the rise. Mortgage rates tend to drop when the yield drops. The gap between the two is usually about 1.72 percentage point. However, it has been that way for quite some time. What’s important to note is that the spread has been widening much more than usual lately (see graph). The main reason is the uncertainty in financial markets. Why is this important for you? This may seem overly technical, but it’s important to understand the spread. According to the historical average, mortgage rates can improve today if inflation continues to fall. Odeta Kush, Deputy Chief economist at First American, says: “It is reasonable to assume the spread, and therefore mortgage rates, will decline in the second half if the Fed eases up on the monetary tightening. . . The spread is unlikely to return to its historical average, which is 170 basis points. This is because some risks are here for the long haul.” Similarly, Forbes states: “Though housing market observers expect mortgage rates to continue to rise amid ongoing economic uncertainty, and the Federal Reserve’s rate-hiking battle on inflation, they think rates peaked last autumn and will decline to some degree later this year, barring unforeseen surprises.” Bottom LineIf you are a first-time buyer or an existing homeowner who wants to move into a

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