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The Connection Between 10-Year Treasury Yields & Mortgage Rates – From GCA Forums News
What causes lower 10-year Treasury yields to lower mortgage rates?
- The closely observable indicators within finance and real estate are mortgage rates and the 10-year US Treasury yield. As it affects mortgage rates, it also affects the housing market.
A decrease in the yield on decade Treasury bonds usually brings a decrease in mortgage rates. But how does this work? And why is the 10-year Treasury yield such an important benchmark?
- Let’s answer these questions in a way that is easy to understand, search engine optimized, and suitable for GCA Forums News readers.
Diving into the 10-Year Treasury Yield
- A 10-year US Treasury bond is a type of governmental debt security.
- Investors purchase these bonds because they are considered low-risk and stable, commonly called the safest security.
The yield (interest rates) on 10-year Treasury bonds is determined by supply and demand:
- A rise in demand causes an increase in bond prices, leading to a drop in yield.
- Low demand leads to lower bond prices, resulting in a yield rise.
💡 Why does this matter?
- Interest in loans, such as mortgages, car loans, and business financing, rests within the boundaries of the 10-year treasury yield, a key benchmarks that greatly affect them.
🏡 The Connection Between 10-Year Treasury Yields & Mortgage Rates
✅ The 10-year treasury yield and mortgage rates change together.
✅ The majority of lenders set their rates for a fixed 30-year mortgage by the 10-year treasury.
✅ Mortgage rates usually tend to decrease with the treasury yields.
🔗 The Logic Behind It:
- Safe Asset is Sought After → Bonds Prices Relocate → Decline In Yield.
- Shifting money towards bonds results in a strong demand, which raises bond prices.
- Increasing bond prices results in low yields (interest rates available to the bondholders).
Lower Market Interest Rates Indicate Lower Treasury Yields
- Lenders depend on the 10-year treasury when estimating mortgage rates.
- Lowering yields allows lenders to reduce the mortgage rates to obtain loans.
Lenders And Banks Modify Pricing of Mortgages
- Usually, mortgage lenders are expected to incorporate the ten-year treasury yield’s spread ( a minor markup).
Case in point:
- If the ten-year yield is 4%, mortgage rates with this spread are 6%.
📌 Bottom Line:
🔹 Lower 10-year Treasury yields result in a lowering of mortgage rates.
🔹 Higher 10-year Treasury yields result in a rise in mortgage rates.
📊 Real-World Example: 10-Year Treasuries & Mortgage Rates in Action
A historical comparison of 10-year Treasury yields and 30-year mortgage rates looks like:
Year |10-Year Treasury|30-Year Mortgage Rate|
2020 | 0.60% | 3.00% |
2021 | 1.50% | 3.25% |
2022 | 3.90% | 6.50% |
2023 | 4.50% | 7.25% |
2024 | 3.85% | | 6.75% |
💡 Notice the pattern?
- From 2020-2021, as the 10-year yield declined, mortgage rates also decreased at an unprecedented rate.
- However, as yields increased in 2022-2023, mortgage rates rose above 7%.
- If we anticipate yields dropping in 2025, then mortgage rates may decrease!
📉 What Causes 10-Year Treasury Yields to Drop?
Ten-year treasury yields do not drop randomly. They respond to the economy’s performance, Federal Reserve policies, and investor behavior.
Key Factors That Lower Mortgage Rates And Treasury Yields
Economic Uncertainty & Recession Fears 🏦
- When a recession looms, investors keep funds in secure resources like Treasuries.
- This leads to bond prices rising while yields decrease, which causes mortgage rates to reduce.
Federal Reserve Policy & Interest Rate Cuts 📉
- It is a common tendency for treasury yields to decrease when the Fed lowers its interest rates.
- When the Fed predicts future rate cuts, investors are more inclined to purchase bonds, which results in decreased yields.
- This also aids in reducing mortgage rates!
Assisting In The Reduction Of Inflation 📊
- High inflation leads to high yields and, consequently, high mortgage rates.
🔹 If inflation decreases, the yield on treasuries falls, allowing mortgage rates to decrease.
Uncertainty In The Global Market 🌍
- Circumstances like warfare, financial complications, or a market collapse drive investors to purchase US treasuries.
- This pushes the demand for bonds even though they lower yields and increase mortgage rates.
🔮 Looking Ahead:
Is It Possible That The 10-Year Treasury Yield Dropping Decrease Mortgage Rates in 2025?
Analysts suggest that mortgage rates could drop if the Federal Reserve reduces interest rates. Lowering these rates would decrease the 10-year treasury yields.
GCA Forums News: Mortgage Rate Predictions
- ✔️ It is likely that if the 10-year yield dips under 3.5%, mortgage rates will default to the sweet spot of 5.5%-6%.
- ✔️ If inflation stays high and the Fed decides to raise rates continuously, mortgage rates will most likely remain at the 6.5%- 7.5% margin.
- 💡 Those hoping to buy a home should always monitor the 10-year treasury bond yields. A lower yield translates into lower rates and lesser interest when paying off mortgages.
🏡 What does this mean for prospective homebuyers and homeowners?
For those wanting to purchase a new home:
- Analyze the 10-year bond yields for reductions.
- A reduction usually links to lower mortgage payments down the line.
If the yields look good, pay the interest for a fixed rate and expect great savings.
If you’re looking to get a better rate on your current mortgage, keep an eye out for better compensation rates:
- The drop in the treasury yield means it is prudent to wait for increased refinance rates so you can zip on down to lower payments.
- Your loan’s interest rate dropping by just one percent can result in huge savings over the mortgage term.
For Real Estate Investors
- Reduced rates usually mean more cash flow from rented real estate conduits.
- Lowered rates will likely increase demand for homes, increasing property values.
Remember the 10-year Treasury yield!
A reduction almost always follows the reduction in the 10-year treasury yield in the mortgage rates.
This prime and basic deal is a good dollar for tracking and estimating the timing of making the investment, home purchase, or refinance.
📢 what are your thoughts on these market predictions? Are you standing on the thought that mortgage rates will plummet in 2025? Could you share with us your thoughts down below👇?
📌 Are you looking for pre-approval and mortgage opportunities?
Contact Gustan Cho Associates NMLS 873293.
We assist in all states within the US and its territories!
📞800-900-8569
📧 Email: alex@gustancho.com
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As of the week ending on April 25, 2024, the average rate for a 30-year fixed-rate mortgage is reported at approximately 7.877%. It’s important to note that these rates have seen some fluctuations, and various factors including economic conditions and the borrower’s credit profile influence the final rate offered. For those considering refinancing, the average rate for a 30-year fixed-rate refinance loan has slightly increased to about 8.425%.
Mortgage rates are significantly influenced by economic factors, personal financial details of the borrower, and the specific conditions of the mortgage market at the time. For instance, someone with a strong credit score and a substantial down payment might secure a lower rate, while those with lower credit scores or smaller down payments might face higher rates.
If you’re thinking of securing a mortgage or refinancing your current one, it would be beneficial to compare rates from multiple lenders to find the best deal for your situation. As of April 30, 2024, the housing market is showing signs of resilience and growth in certain areas despite ongoing challenges like high mortgage rates and affordability issues. Key insights include:
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Home sales have seen a mix of increases and decreases depending on the region. Nationally, existing home sales have improved month-over-month but are still below the levels from the previous year. New home sales show slight growth compared to the previous year, indicating a shift where more buyers are opting for new homes due to the low supply of existing homes (Freddie Mac – We Make Home Possible).
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The National Association of Realtors (NAR) forecasts a significant increase in existing-home sales to 4.71 million for 2024, which is up from the previous year. This growth is expected to be concentrated in markets with high demand such as Austin, Texas, which is noted as a top market to watch due to pent-up housing demand (http://www.nar.realtor).
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Mortgage rates have remained steady with an average of around 6.8% as of March, impacting both buying and refinancing activities. Although this presents challenges, there’s an uptick in both refinance activity and purchase applications as the market adapts to these conditions (Freddie Mac – We Make Home Possible).
Overall, while the housing market faces headwinds from higher rates and price pressures, certain regions are experiencing growth, and there’s a general sense of cautious optimism as the market adapts to the economic landscape of 2024.
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Here is a link about an economist aggressively forecasting mortgage rates will drop under 4% in 2024. Could 2024 be a bull market for loan officers? Out of 150,000 loan officers, close to 100,000 either left the mortgage industry completely, retired early, or let their NMLS licenses expire and are in a different industry or thinking about going into a different industry. Hundreds if not thousands of mortgage companies, whether they are mortgage bankers, correspondent lenders, or mortgage brokers went out of business in 2023
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Mortgage Rates forecasted to plummet under 3% according to Business Insider Economis
businessinsider.com
"We think we're going to end up with a relatively soggy 2024 when we look back at the end of next year."
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How can I get a home loan with low mortgage rates? How do lenders price mortgage rates? What are the step by step process on how mortgage lenders price mortgage rates on conventional and government loans and non-QM loans?
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This is a frequently asked question from many real estate agents on behalf of their homebuyers. There are more and more homebuyers with bad credit than ever before. Many homebuyers with bad credit think they are the worst of the food chain and should not shop for the best mortgage rates. However, mortgage lenders today are starving for business and will work with bad credit borrowers in getting them the best rates. I just saw this guide on can you shop for the best mortgage rates with bad credit and I wanted to share this with everyone. It does make sense. By shopping for a mortgage with the best rates means getting a mortgage with bad credit with low credit scores with no discount points. Discount points are a total waste of money and you will never recoup discount points even on a refinance later when mortgage rates drop.
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When is a good time to refinance if you have a 7.5% rate on FHA loan? I heard mortgage rates are dropping lower.
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