The Top Indicator if You Want To Know Where Mortgage Rates Are Heading
Mortgage rates have increased significantly since the beginning of the year. Each Thursday, Freddie Mac releases its Primary Mortgage Market Survey.
According to the latest survey, the average 30-year fixed-rate mortgage
has risen from 3.22% at the start of the year to 3.55% as of last week.
This is important to note because any increase in mortgage rates
changes what a purchaser can afford. To give you an idea of how rising
mortgage rates impact your purchasing power, see the table below:
How Can You Know Where Mortgage Rates Are Headed?
While it’s always difficult to know exactly where mortgage rates will
go, a great indicator of where they may head is by looking at the
50-year history of the 10-year treasury yield, and then following its
path. Understanding the mechanics of the treasury yield
isn’t as important as knowing that there’s a correlation between how it
moves and how mortgage rates follow. Here’s a graph showing that
relationship over the last 50 years:
This correlation has continued into the new year. The treasury yield
has started to climb, and that’s driven rates up. As of last Thursday,
the treasury yield was 1.81%. That’s 1.74% below the mortgage rate
reported the same day (3.55%) and is very close to the average spread we
see between the two numbers (average spread is 1.7).
Where Will the Treasury Yield Head in the Future?
With this information in mind, a 10-year treasury-yield forecast
would be a good indicator of where mortgage rates may be headed. The Wall Street Journal just surveyed
a panel of over 75 academic, business, and financial economists asking
them to forecast the treasury yield over the next few years. The
consensus was that experts project the treasury yield will climb to
2.84% by the end of 2024. Based on the 50-year history of following this
yield, that would likely put mortgage rates at about 4.5% in three
While the correlation between the 30-year fixed mortgage rate and the
10-year treasury yield is clear in the data shown above for the past 50
years, it shouldn’t be used as an exact indicator. They’re both hard to
forecast, especially in this unprecedented economic time driven by a
global pandemic. Yet understanding the relationship can help you get an
idea of where rates may be going. It appears, based on the information
we have now, that mortgage rates will continue to rise over the next few
years. If that’s the case, your best bet may be to purchase a home
sooner rather than later, if you’re able.
Forecasting mortgage rates is very difficult. As Mark Fleming, Chief Economist at First American, once said:
“You know, the
fallacy of economic forecasting is don’t ever try and forecast interest
rates and or, more specifically, if you’re a real estate economist
mortgage rates, because you will always invariably be wrong.”
However, if you’re either a first-time homebuyer or a current
homeowner thinking of moving into a home that better fits your changing
needs, understanding what’s happening with the 10-year treasury yield
and mortgage rates can help you make an informed decision on the timing
of your purchase.