Mortgage Rates: Where Will They Go Next?

The US 10-year Treasury yield is the best predictor of mortgage rates. Today, the 10-year yield is 1.37%. Using the regression derived model from Bill McBride and Calculated Risk, with an R-squared (predictive power) of 98%, the 30-year mortgage rate should be 3.4%.

Mortgage News Daily reported 3.1% as the average 30-Year mortgage rate as of yesterday: 

The US 10-year Treasury yield will have to fall further to 1.1% to justify such a low mortgage rate. The 10-Year would need to rise to 2% to get a mortgage rate of 4%. 

Where the US 10-year Treasury Yield goes from here is anybody’s guess. But, it has been drifting slightly downward since June 16, 2021 when the Federal Reserve updated their projections. 

While the Fed kept its target fed funds rate unchanged for the tenth straight meeting at a range of 0.00-0.25, its slight change in the dot plot indicated the Fed is getting closer to its first rate increase in 2022 or 2023. 

Interestingly, despite the Fed indicating they may raise rates slightly sooner than expected, the US 10-year Treasury yield fell, rather than rose. This can be interpreted as the market expecting the economy to cool off as the Fed tightens monetary policy. If the market is right, mortgage rates will hold steady. If the market is wrong and the economy continues to grow strongly we can expect interest rates to rise and mortgage rates to follow suit.  

Where the US 10-year Treasury Yield goes mortgage rates go. As always, we will keep you updated.