Mortgage Rates Remain Elevated Despite Declining Borrowing Costs
WASHINGTON – Despite a recent dip in broader borrowing costs, mortgage rates have remained stubbornly high, leaving prospective homebuyers frustrated and the housing market in a holding pattern.The gap, or “spread,” between mortgage rates and Treasury yields is unusually wide, and experts point to persistent inflation and a shift in the market for mortgage-backed securities as key drivers.
the spread has been wider than normal for two main reasons, according to Selma Hepp, chief economist at Cotality.Inflation “remains sticky,” especially for services and shelter, she says, with overall inflation climbing back to 2.9% year over year in august – above the Fed’s 2% target. As higher inflation erodes the value of mortgage bond payments, investors tend to seek higher yields.
Furthermore,the Federal Reserve’s reduction in 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 the spread relative to Treasuries,” says Hepp.
The Federal Reserve’s own projections, released in September 2025, do not anticipate inflation reaching 2% until 2028, suggesting this dynamic is likely to continue. “This has increased longer-term inflation expectations, which increases the premium demanded for mortgages,” explains Christopher Hodge, chief economist for the U.S. at Natixis CIB americas.
Consequently, Fannie Mae projects 30-year fixed rates will stay above 6% for another year, according to an updated forecast released Tuesday.
