Why is the mortgage rate spread widening beyond its historical average?

The widening spread is primarily driven by uncertainty in financial markets, including factors like inflation, broader economic drivers, and policy decisions from the Federal Reserve. This uncertainty has pushed the gap between mortgage rates and Treasury yields well beyond the typical 1.72 percentage point average.

What do experts predict will happen to mortgage rates in the near term?

Experts believe mortgage rates have room to improve based on the historically wide spread, and they expect rates to decline in the second half of 2023 if inflation continues to cool and the Federal Reserve eases monetary tightening. However, rates are unlikely to return all the way to their historical average, as some economic risks are expected to persist.

Why should homebuyers pay attention to the mortgage rate spread?

Understanding the spread between mortgage rates and Treasury yields helps buyers recognize that current mortgage rates may have room to improve compared to historical norms, which can inform timing and borrowing decisions. This knowledge empowers you to make more informed choices about your home purchase.

Explaining Today’s Mortgage Rates

By Anne-Britt OstlundJuly 17, 20233 min read

Buying a Home

If you’re following mortgage rates because you know they impact your borrowing costs, you may be wondering what the future holds for them. Unfortunately, there’s no easy way to answer that question because mortgage rates are notoriously hard to forecast.

But, there’s one thing that’s historically a good indicator of what’ll happen with rates, and that’s the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Here’s a graph showing those two metrics since Freddie Mac started keeping mortgage rate records in 1972:

As the graph shows, historically, the average spread between the two over the last 50 years was 1.72 percentage points (also commonly referred to as 172 basis points). If you look at the trend line you can see when the Treasury Yield trends up, mortgage rates will usually respond. And, when the Yield drops, mortgage rates tend to follow. While they typically move in sync like this, the gap between the two has remained about 1.72 percentage points for quite some time. But, what’s crucial to notice is that spread is widening far beyond the norm lately (see graph below):

If you’re asking yourself: what’s pushing the spread beyond its typical average? It’s primarily because of uncertainty in the financial markets. Factors such as inflation, other economic drivers, and the policy and decisions from the Federal Reserve (The Fed) are all influencing mortgage rates and a widening spread.

Why Does This Matter for You?

This may feel overly technical and granular, but here’s why homebuyers like you should understand the spread. It means, based on the normal historical gap between the two, there’s room for mortgage rates to improve today.

And, experts think that’s what lies ahead as long as inflation continues to cool. As Odeta Kushi, Deputy Chief Economist at First American, 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.”

Bottom Line

Thank you for reading our blog on the importance of staying informed about mortgage rates and expert insights if you're a first-time home buyer or a current homeowner looking to find a more suitable property. Making well-informed decisions about your housing needs requires staying up to date with the ever-changing landscape of mortgage rates and understanding the projections of industry experts in the coming months.

At Mountain Rose Realty, we understand the significance of keeping a pulse on the real estate market, especially in a unique and sought-after location like Telluride. Our expert, Anne-Britt, specializes in Telluride Real Estate and provides valuable guidance tailored to the local market dynamics.

By staying on top of mortgage rates and expert opinions, you can gain a comprehensive understanding of the financial landscape and make informed decisions about your housing aspirations. Whether it's your first home purchase or a desire to transition into a property that better suits your current needs, being aware of market trends and expert insights is essential.

At Mountain Rose Realty, we strive to empower buyers and homeowners by providing them with the resources they need to make informed decisions. Anne-Britt, with her expertise in Telluride Real Estate, offers valuable insights that can guide you through your real estate journey.

So, as you navigate the exciting world of homeownership or consider finding a property that better suits your needs, remember to keep a close eye on mortgage rates and stay informed about what industry experts, such as those at Mountain Rose Realty, including our specialist Anne-Britt, predict for the future.

Stay informed, make informed decisions, and let us help you find the perfect home in this exceptional location.

Frequently Asked Questions

What is the historical relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield?: Historically, the 30-Year Mortgage Rate and the 10-Year Treasury Yield have moved in sync, with an average spread of about 1.72 percentage points (172 basis points) over the last 50 years. When the Treasury Yield trends up, mortgage rates typically follow, and when it drops, mortgage rates tend to do the same.
Why is the mortgage rate spread widening beyond its historical average?: The widening spread is primarily driven by uncertainty in financial markets, including factors like inflation, broader economic drivers, and policy decisions from the Federal Reserve. This uncertainty has pushed the gap between mortgage rates and Treasury yields well beyond the typical 1.72 percentage point average.
What do experts predict will happen to mortgage rates in the near term?: Experts believe mortgage rates have room to improve based on the historically wide spread, and they expect rates to decline in the second half of 2023 if inflation continues to cool and the Federal Reserve eases monetary tightening. However, rates are unlikely to return all the way to their historical average, as some economic risks are expected to persist.
Why should homebuyers pay attention to the mortgage rate spread?: Understanding the spread between mortgage rates and Treasury yields helps buyers recognize that current mortgage rates may have room to improve compared to historical norms, which can inform timing and borrowing decisions. This knowledge empowers you to make more informed choices about your home purchase.