Of late, mortgage rates have been somewhat stuck in a holding pattern, although they have also fallen at the same time.
At last glance, the 30-year fixed rate was priced at around 6.25%, which is pretty good in the grand scheme of things. Definitely lower than the historical average of 7.75%.
Considering prices were closer to 7% for most of the last 52 weeks, that’s a decent place to be.
They are also basically hovering just above the lows seen over the past three years, another positive takeaway.
The question is, how do they get their big break and finally dip below 6% again?
Mortgage rates are close to breaking below 6% for the first time in almost three years
Mortgage rates haven’t been below 6% since February 2, 2023, at least according to Mortgage News Daily.
And Freddie Mac has not recorded a reading below 6% for the 30-year fixed term since the week ending September 8, 2022!
It’s a long time. Almost three years now. Of course, they have been close to those levels at times since then.
And at the moment they are not far away at all. In reality, homeowners receive mortgages that start with 5 already.
But if we’re going to use a mortgage index like the highly cited MND or Freddie Mac’s Primary Mortgage Market Survey, we’re still over 6%.
So how do we get below the central psychological level after almost 36 months? Well, the best path is probably continued economic weakness and lower inflation.
The problem right now is a lack of economic data due to the ongoing government shutdown, which is now on day 16.
Even without that, there are private data reports and even alternative ways to collect data or measure sentiment (OpenTable anyone?).
Forget all that though. We are almost at sub-6% levels as it stands, so we don’t need much news to go a little lower.
And as I’ve said before, mortgage rates tend to fall during government shutdowns anyway.
Where is Flight to Safety?
Just take a look at 10-year bond yields, which clock in at 30-year fixed mortgage rates.
The 10-year yield is currently at 4.02%, making a slight standoff just above the 3s. It has briefly dipped below 4% at times in the past week, but has not stayed there.
It remains just above 4% as it is a resistance point. As it stands, 6% is a resistance point for mortgage rates.
But here’s the thing. We are knocking on the door of a 10-year bond yield below 4% without new economic data.
And we do that at a time when the stock market is at/near record highs!
In general, stocks and bonds have an inverse relationship, in that if one goes up, the other goes down and vice versa.
So if stocks are red hot, which they appear to be at the moment, that means bonds should be freezing cold. And if bonds are ice cold, their associated yield (or interest rate) should be quite high to attract investors.
Does this mean that if and when stocks take a breather, we will see a flight to safety in bonds that will finally lift bond prices and lower their yields?
It certainly makes sense, and since we’re already hovering just above 4%, you could imagine a scenario where we finally break through in the 3s.
Update: As I wrote this post, the 10-year yield was pushing below 4% due to fears about regional banks. The last time banks failed in early 2023, the 30-year yield fell from about 7% to 6% in about a month.
Bond yields may push to the low end of their range
Back in May, JPMorgan Asset Management fixed income portfolio manager Kelsey Berro noted that the 10-year bond yield was trading in a range from 3.75% to 4.50%.
And with the Fed in a neutral, if not arguably dovish position, chances are we’ll have to move to the low end of the range.
Assuming that happens and we get down to 3.75%, mortgage rates should follow, as they historically do.
If we currently have a 30-year fix at 6.25%, you can see a path down to 5.99% and even lower.
It may even happen in the last three months of the year, as there are still plenty of years left in 2025.
All you really need is a flight to safety in bonds and a pullback in the stock market, which many seem to think is long overdue.
We have some soaring valuations at the moment, an abundance of meme stocks including mortgage and real estate related names, and general euphoria happening in the market right now.
So it wouldn’t be unrealistic to see a big move from stocks to bonds at some point over the next few months.
As mentioned, we are already almost there anyway. Only about 25 basis points and mortgage rates may return to levels last seen in 2022.
Read on: How to track interest on mortgage loans.
(photo: Courtney)
Before creating this site, I worked as an account manager for a wholesale pawn shop in Los Angeles. My hands-on experience in the early 2000s inspired me to start writing about mortgages 19 years ago to help potential (and existing) homebuyers better navigate the home loan process. Follow me on X for hot takes.