If you're keeping an eye on mortgage rates because you know they affect how much you'll have to pay, you might be curious about what's coming down the road. Well, I wish I could give you a straightforward answer, but the truth is, predicting mortgage rates is a tricky business. They're known for being pretty hard to forecast accurately.

You know what's interesting? If we want to predict what's going to happen with interest rates, there's one thing that has always been a reliable indicator. It's all about the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Let me show you a graph that tracks these two metrics since 1972 when Freddie Mac first started keeping records of mortgage rates. It's pretty fascinating to see how they correlate over time.

So, if you take a look at the graph, you'll see that over the past 50 years, the average difference between the two rates has been around 1.72 percentage points, also known as 172 basis points. Basically, when the Treasury Yield goes up, mortgage rates tend to go up as well. And when the Yield goes down, mortgage rates usually follow suit. This pattern has been consistent for a while now, with the gap between the two staying around 1.72 percentage points. However, what's noteworthy is that recently, this gap has been widening way beyond the usual range. You can see it clearly in the graph below.

If you're wondering why the spread is getting higher than usual, it's mostly because of the uncertainty in the financial markets. Things like inflation, other economic factors, and the decisions made by the Federal Reserve (The Fed) are all playing a role in influencing mortgage rates and causing the spread to widen.

Why Does This Matter for You?

I know this might sound a bit technical, but it's actually really important for homebuyers like you to understand the spread. Here's why: it basically refers to the typical historical difference between two things, and in this case, it's about mortgage rates. So, when we say there's room for mortgage rates to improve today, it means that based on this historical gap, there's a chance that mortgage rates could get better. Hope that clears things up for you!

““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.”
”

— Odeta Kushi, Deputy Chief Economist at First American

““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.”
”

— Forbes

Bottom Line

If you're a first-time home buyer or already own a home but want to find a place that better suits your needs, it's important to stay informed about mortgage rates and what experts predict for the near future.