If you’ve been hoping for lower mortgage rates, you’re not alone. The good news? They’ve already started to ease a bit. The question, of course, is whether that trend will last — and how far they might fall. According to most economists, there’s still room for improvement over the next year. The key indicator to watch? The 10-year Treasury yield.
The Connection Between Mortgage Rates and the 10-Year Treasury
For more than half a century, the 30-year fixed mortgage rate has closely tracked the 10-year Treasury yield. When the yield rises, mortgage rates follow. When it falls, rates tend to come down. Typically, there’s a steady gap between the two — what’s known as the spread — averaging around 1.75%. Today, the spread is around 2.25%. That spread represents the premium investors require to hold mortgage-backed securities versus Treasuries. It’s also, in many ways, a reflection of fear.
Why the Spread Matters
Over the past couple of years, that spread has widened well beyond normal levels. High inflation, rate hikes, and general uncertainty have made investors nervous, keeping mortgage rates artificially elevated. But lately, that’s begun to change. As inflation cools and economic direction becomes clearer, that spread has started to narrow. And that’s meaningful — because a smaller spread means lower mortgage rates. If the spread continues to decline, mortgage rates could fall more than they already have.
What Experts Expect Next
The 10-year Treasury yield itself is also expected to decline gradually into next year. Combine that with a narrowing spread, and you have two strong reasons why experts believe mortgage rates may ease through 2025 and into 2026 — potentially dipping into the high 5% range if current trends continue. For context: the 10-year Treasury is around 4.1% right now. Add the historical spread of 1.75%, and you get roughly 5.85% — a healthy improvement from the 7% range we’ve been living with.
Of course, there’s no crystal ball. Rates move with the broader economy — jobs, inflation, and investor sentiment all play a role. But the direction of travel finally appears to be favorable.
What This Means for You
If you’ve been waiting for the “right time” to buy or refinance, this next year could open a window of opportunity. Timing the market perfectly is nearly impossible, but understanding the trend helps you plan strategically rather than react emotionally.
If you’d like to stay informed as rates continue to shift, I’m happy to help you track what’s happening and what it means for your specific goals.
