Mortgage Rates Remain Elevated Despiteโ Declining Borrowing Costs
WASHINGTON – Despite a recent โdip in broader borrowing costs, โmortgage rates have remainedโ stubbornly high, leaving prospectiveโ homebuyers โฃfrustrated and the โฃhousing market in aโ holding pattern.The gap, or “spread,”โข between mortgage rates and Treasury yields is unusuallyโ wide,โค and experts point to persistent inflation and a shift in the market โคfor mortgage-backed securities as key drivers.
the spread has been wider than normal for two main reasons, according to Selma Hepp, โchiefโ economist at Cotality.Inflation “remains sticky,” especially for services and shelter, she says, with overallโค inflation climbing back to 2.9% year over year in august – above the Fed’s 2% target. As higher inflationโฃ erodes the value of mortgage bond payments, โinvestors tend to seek โhigher yields.
Furthermore,the Federalโ Reserve’s โฃreduction inโ its purchases of mortgage-backed securities has created a void filled by private investors.”With less demand, [mortgage-backed security] prices fall, yields rise and mortgage rates increase. This widens โฃthe spread relative to โTreasuries,” says Hepp.
The Federal Reserve’s ownโ projections, released in โฃSeptember 2025, do not anticipate inflation reaching 2% until 2028, suggesting โขthis dynamic is likely to continue. “This has increased longer-term inflation expectations, which increases the premium demanded โฃfor mortgages,” explains Christopher Hodge, chiefโฃ economist for the U.S. at Natixis CIB americas.
Consequently, Fannie Mae projects 30-year fixed rates โฃwill stay above 6% for another year, โขaccording to an updated forecast releasedโข Tuesday.