10-year yield and mortgage rates
In my forecast for 2025, I predicted the following ranges:
- Mortgage rates between 5.75% and 7.25%
- The 10-year yield fluctuates between 3.80% and 4.70%
Last week was filled with drama, from speeches by Federal Reserve Chairman Jerome Powell to President Trump implementing the shadow Fed president protocol. Despite the turmoil, both the 10-year yield and mortgage rates saw a decline.
Lower mortgage rates, moving from 6.64% towards 6%, tend to positively impact housing data. As rates dropped from 6.84% to 6.72% by the end of the week, and the 10-year yield decreased, there was some stabilization in the weekly data lines.
Mortgage spreads
Mortgage spreads have been elevated since 2022 but have improved since their peak in 2023. Recent data shows that spreads have been critical in limiting the impact of a higher 10-year yield when it goes up.
If spreads were at peak levels from 2023, mortgage rates today would be 0.65% higher. Conversely, a return to normal spreads could lead to rates being 0.85% to 0.65% lower than current levels.