You want mortgage rates to fall – and they've started to. But is it going to last? And how low will they go?
Experts say there’s room for rates to come down even more over the next year. And one of the leading indicators to watch is the 10-year treasury yield. Here's why.
The Link Between Mortgage Rates and the 10-Year Treasury Yield
For over 50 years, the 30-year fixed mortgage rate has closely followed the movement of the 10-year treasury yield, which is a widely watched benchmark for long-term interest rates (see graph below):
When the treasury yield climbs, mortgage rates tend to follow. And when the yield falls, mortgage rates typically come down.
It’s been a predictable pattern for over 50 years. So predictable, that there’s a number experts consider normal for the gap between the two. It’s known as the spread, and it usually averages about 1.76 percentage points, or what you sometimes hear as 176 basis points.
The Spread Is Shrinking
Over the past couple of years, though, that spread has been much wider than normal. Why? Think of the spread as a measure of fear in the market. When there’s lingering uncertainty in the economy, the gap widens beyond its usual norm. That’s one of the reasons why mortgage rates have been unusually high over the past few years.
But here’s a sign for optimism. Even (click "Learn More" to finish the article)...
