McKeveny and Hale emphasize that achieving a magic mortgage rate of 6% is contingent on improving mortgage spreads. Most recently, the spread stands at 234 basis points above the 10-year treasury yield, better than 300 points noted in 2022 but still above the long-term average of 170 basis points. The current uncertainty in regulatory and political environments adds to the stubbornness of these spreads. Economists believe that if the treasury yield decreases, mortgage rates would follow, but the Federal Reserve's current absence as an active buyer of mortgage-backed securities complicates this scenario further.
"The most recent data point from last week shows a 234 basis point spread between mortgage rates and the 10-year treasury yield. The good news is that we have compressed from north of 300-points in the highs of 2022 and 2023, but the long-term average is about 170-basis points."
"Hale attributes the stubbornness of mortgage spreads to the current uncertain regulatory and political environment creating volatility in the bond market. However, McKeveny said it is important to also keep tabs on what the Federal Reserve is doing."
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