Are These As Good As Mortgage Rates Are Currently?

Well, it’s been a week since the Fed cut rates and mortgage rates have gone up.

While this may come as a surprise to some, experienced mortgage industry researchers have ignored it.

It’s common for the Fed to do one thing and mortgage rates to do another.

Without getting too confused, the Fed fixes short-term rates while mortgages are long-term rates, called 30-year fixed rates.

In other words, the amortization (and future amortization as well) was already priced into the loan amount. So much so that they have really grown over the past week in a way to “sell news” to fix.

Are Mortgage Rates Still Going Down?

Fitch Ratings just came out and said that the Fed’s 50-point rate cut had priced in both the 10-year Treasury yield and the 30-year mortgage rate.

In addition, they argue that the 10-year yield, which tracks mortgage rates historically, has “little room to move down” as a result.

In fact it is already falling on expectations and it may be difficult to fall much further. In fact, we’ve seen it rise since the Fed’s decision last week.

The 10-year yield was as low as 3.61% and now sits around 3.77%, putting upward pressure on mortgage rates since then.

Prices actually looked set for a 5% high before pulling back and retracing their path back to 6.25%.

And with little economic data this week, there’s no reason for them to come together.

But next week we get the employment report, which could help prices bounce back if they are soft.

Maybe 5% Lower Mortgage Rates in 2026

If the 10-year yield isn’t expected to get much better from here, mortgage rates will only be able to come down with better spreads.

Currently, loan spreads are wide due to high prepayment risk, volatility, and general uncertainty.

Investors demand a premium to buy mortgage-backed securities (MBS) compared to government bonds and have recently bid more than usual.

Fitch puts the average spread at about 1.80%, while I’ve been saying it’s about 170 basis points. Either way, it is significantly higher today.

It was around 300 bps at its worst in 2022. It has since dropped to 240 points, which means it is almost back to normal.

So if bond yields stay stuck where they are, you’ll need a normal spread to get mortgage rates to go down.

It’s certainly possible, and as I wrote a few weeks ago, it would lead to mortgage rates dropping by about .50% from current levels.

That would put a 30-year fixed in the high-5% range, and even lower if the borrower is willing to pay discount points.

Mortgage Rates Won’t Drop Below 5% Before 2027

The rating agency also announced that loan rates are unlikely to fall below the 5% ceiling before the year 2027.

That means at least two more years of “high rates” before mortgage rates are no longer a concern.

And, that’s because the 10-year yield is expected to remain flat and fall to around 3.50% by the end of 2026.

If the spread is back to normal at that point, you can do the math and come up with a value of around 5.30% (3.5+1.8).

Of course, these are all just predictions and many of these predictions have been wrong in the past. In fact, they are rarely good. Most were wrong on the way to 3% and way up to 8%!

So who will say that they will be right this time?

I’m very optimistic about mortgage rates because I think there are a lot of Fed rate cuts predicted over the next 12 months, which haven’t all been put in place yet.

Similar to the increase in mortgage rates, from 3% to 8%, the market is stuck. This can also happen on the way down.

I can envision the 10-year yield falling into the low 3% range next year, when combined with the spread compression puts the 30-year fixed in the 5% range.

And once you score, most quotes average in the high 4% range. For many home buyers, that would be acceptable.

But I’ve long argued that prices are no longer a critical sticking point. We have home prices that are perhaps the most expensive in most markets, and sticker shock on insurance, taxes, and everyday goods.

Despite a modest reduction in home prices, it will still be difficult to sell to buyers in the market, especially if the broader economy weakens.

Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.

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