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What about these mortgage rates that recently peaked around 8%?

Before analyzing anything, it’s important to note that, historically, the 30-Year Fixed Mortgage Rate almost identically mirrors the U.S. 10 Year Treasury Yield. The historical average suggests the 30-Year Fixed Mortgage Rate runs about 1.75% higher than the 10-year yield. However, in 2023 we saw this peak up over 3%.

In October 2023, we saw mortgage rates spike at 8% when the 10-year nearly touched 5%. Applying a historical context, 30-year rates should have been in the 6.75-7% range. 

So why is the spread at an all-time high? Simply put, economic uncertainty. Once investors feel more confident about where monetary and rate policy are heading, we will see the spread return to historical averages. Once the Federal Reserve monetary policy matches market expectations, rates will begin to improve. As of this writing on Jan. 12, the 10-year treasury hovered around 4%. Applying this spread, rates should be about 5.75%, but they are roughly 7%.

What does all this mean? Rate reprieve is very likely coming. If rates have been prohibitive to your housing or mortgage needs, I’d be getting myself prepared today.  

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