Will Mortgage Rates Fall Further? Analyzing the Current Rate Environment and Treasury Yield Correlation

Mortgage rates are expected to decline in the coming weeks, following a recent pause after a prolonged period of decreases. This prediction is based on the growing gap between falling U.S. Treasury yields and mortgage rates, a historical relationship that suggests home loans will become cheaper. For homebuyers, this signals a potential window of opportunity during the spring market.

Why Did Mortgage Rates Hold Steady This Week?

According to the Freddie Mac Primary Mortgage Market Survey (PMMS), a key industry benchmark, the average rate for a 30-year fixed-rate mortgage remained at 3.65% this week. This halt follows a consistent downward trend throughout the year. Mortgage rates fluctuate daily based on various factors, but the PMMS provides a weekly snapshot trusted by economists to identify broader movements. The current stability, while a break from the recent pattern, occurs within a context of overall low borrowing costs. The fundamental reason rates have been so low is tied to the cost of government debt.

How Do Treasury Yields Influence Mortgage Rates?

Mortgage costs often move in correlation with the cost of government borrowing. When the yield on the 10-year U.S. Treasury note falls, mortgage rates typically follow. A Treasury yield is the effective interest rate the U.S. government pays to borrow money for a set period. Currently, the 10-year yield is approximately 1.78%, an exceptionally low rate indicating high investor confidence in the government's ability to repay its debts. In times of global economic uncertainty, investors prioritize the safety of U.S. Treasuries, accepting lower returns in exchange for lower risk. This high demand drives down yields, which in turn creates downward pressure on mortgage rates.

Will Mortgage Rates Drop to Catch Up with Falling Yields?

Historical data suggests that mortgage rates will likely decrease to close the gap with Treasury yields. As the table above shows, the 10-year Treasury yield has dropped more significantly (54 basis points) than the average mortgage rate (36 basis points) since the beginning of the year. A basis point is one-hundredth of a percentage point, used to describe changes in interest rates. This divergence creates an opportunity for lenders to reduce rates while maintaining profitability. Based on our experience assessment, this historical pattern, combined with continued economic factors favoring safe-haven assets, points toward further mortgage rate declines just as the spring home-buying season intensifies.

For prospective homebuyers, the key takeaway is to monitor this relationship closely. A sustained drop in Treasury yields often precedes a reduction in mortgage rates. Pre-approval from a lender can help you move quickly if rates dip, locking in a lower monthly payment. While not guaranteed, the current environment suggests that more affordable financing may be on the horizon.