What a run it has been for mortgage rates lately.
In just the past six weeks, the 30-year fixed has fallen about half a percentage point.
At last glance, the 30-year fixed is hovering around 6.75%, down from 7.25% as recently as mid-January.
Mortgage rates are currently enjoying some tailwinds related to cooling economic data and rising unemployment.
The obvious next question: Can it continue and what might derail it?
Mortgage Rates Enjoying a Nice Downtrend Lately
- A series of weak economic reports have pushed mortgage rates lower
- The 30-year fixed is now down from around 7.25% in mid-January to 6.75% today
- The trend is our friend right now and could continue to deliver savings into spring
- But it might be at the expense of a deteriorating economy (recession) so beware
A common phrase in the mortgage world is “the trend is our friend.” Or conversely, “the trend isn’t our friend.”
At the moment, the trend has certainly been the friend to loan officers, mortgage brokers, and real estate agents.
For much of the past six months, since around late September, the trend wasn’t our friend thanks to a hot jobs report and a Trump win.
But after some cool economic reports, deteriorating consumer confidence, ongoing government layoffs, and dovishness surrounding tariffs, rates have reversed course and come down.
The 10-year bond yield, which is used to track mortgage rates, has fallen from around 4.79% in to 4.24% today.
It has also finally shown some sustained downward pressure, instead of bouncing up and down.
And the 10-year bond yield is now below the 3-month bond yield, known as an “inverted yield curve,” which has been a solid recession indicator.
So while the low mortgage rates are good news on the surface, it might be bittersweet if the economy goes down with it.
One final factor working in favor of mortgage rates is a possible ending of Quantitative Tightening (QT), where mortgage-backed securities (MBS) and Treasuries run off the Fed’s balance sheet.
How Low Might They Go?
As it stands, mortgage rates are back to levels last seen in December. While that’s a positive development for prospective home buyers (and potentially refinancers), we remain far from 52-week lows.
In fact, we’re still about 75 basis points (.075%) above the lowest levels of 2024, when rates sunk to around 6% in late September, per MND.
So we’ve still got a lot of work to do to even get back to those levels. And if you zoom out even more, rates would still be double the levels seen in early 2022 if they make it back to 6%.
Of course, everyone seems to have forgotten about those by now and thanks to how our brains work, 6% sounds good today.
And 5% sounds really good, with quotes in the high 4s unfathomable.
In order to keep up the momentum, we sadly need more weak economic releases to dominate the calendar over the next weeks and months.
Basically, more of the same to show that the economy is indeed slowing, and that inflation is no longer a concern.
Sprinkle in more layoffs and rising unemployment and mortgage rates could fall even more.
If the data can prove that, bonds will continue to rise in value, and their associated yields (or interest rates) will drop.
This will provide additional relief to cash-strapped home buyers and also ramp up the rate and term refinance numbers.
But again, at the expense of the economy, and perhaps the stock market. Remember, stocks and mortgage rates tend to move in the same direction.
In other words, your portfolio might be worth a lot less if you can get a high-5% mortgage rate again. Clearly bittersweet but another good reason to buy and hold, right?
What Could Stop This Recent Move Lower?
- Keep an eye on new tariffs that could raise the price of imports (and home building materials)
- Also watch out for the impact of new tax cuts that could lower government revenue
- The debt ceiling will also be a topic of conversation again soon and could result in more bond issuance
- All of these things have the power to raise mortgage rates again, so if you like it, lock it
We talked about why mortgage rates moved lower lately, and how they could continue to move lower.
But what might stop them in their tracks? We’ve seen this movie before, and just when everything appears peachy, they reverse course.
Mortgage rates are a rollercoaster, and it’d be silly to expect anything different this time around.
Just as quickly as they’ve fallen, they could jump back up again if economic data comes in hot again.
Or if President Trump unleashes new tariffs that raise the price of imports, including home building materials that raise the prices of newly-constructed homes.
There’s also Trump’s tax cuts, such as removing taxes on overtime pay, which could reduce government revenue by potentially trillions of dollars.
This could result in the debt ceiling being raised by $4 trillion over the next two years while adding nearly $3 trillion to the federal deficit over the next decade.
So there are some very large elephants in the room that could completely unravel the recent progress made by mortgage rates.
Ultimately, it’s going to be a battle between a deteriorating economy and government spending to see which way mortgage rates go.
In other words, expect more surprises, and if you’re shopping mortgage rates, don’t look a gift horse in the mouth.
If you like what you see, lock it before you miss your chance.
Read on: Mortgage rates are historically lowest in the month of February.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.