New York, NY — Mortgage rates have fallen by about half a percentage point over the past year, according to Freddie Mac, offering some relief to homebuyers. But the bigger question remains: where are mortgage rates headed over the long term?
Mortgage Rates and the Treasury Market Connection
Mortgage interest rates are closely linked to the U.S. government bond market, particularly the 10-year Treasury yield. While the two do not move in lockstep, they tend to follow the same direction, with mortgage rates typically sitting higher due to an added spread.
Analysts note that “mortgage rate forecasts are best derived from trends in 10-year Treasury note rates,” making Treasury yields a key indicator for future home loan costs.
What Economists Expect From Treasury Yields
To estimate where mortgage rates may land over the next five years, economists first look at projections for the 10-year Treasury yield.
Michael Wolf, a global economist at Deloitte Touche Tohmatsu Ltd., outlined the firm’s expectations in a recent U.S. economic outlook. He wrote that “although we anticipate short-term interest rates to decline in the next couple of years, long-term interest rates are expected to remain elevated.” Deloitte expects the 10-year Treasury yield to “remain above 4.1% through 2030.”
Other forecasts vary. Goldman Sachs analysts project the 10-year Treasury could climb to 4.5% by 2035, while the Congressional Budget Office expects yields to dip to 3.9% by the end of 2026 and settle around 3.8% by 2030. Since Deloitte’s outlook sits between these estimates, it is often used as a baseline for long-term projections.
Understanding the Mortgage Rate Spread
Mortgage rates are not equal to Treasury yields. The difference between the two, known as the spread, reflects lender risk, market volatility, and investor demand.
In recent years, this spread has widened. From 2010 to 2020, it typically stayed under two percentage points. Since 2022, however, it has hovered closer to 2.5 points. As one analysis explains, “the spread between Treasurys and mortgage rates has been on either side of 2.5 percentage points in recent years.”
For example, when the 10-year Treasury sits at 4%, a 2.5-point spread would imply mortgage rates near 6.5%. In December, the actual spread was closer to two points, showing how market conditions can fluctuate.
Five-Year Mortgage Rate Outlook
By combining Treasury forecasts with an estimated spread of roughly 2.1 to 2.3 percentage points, analysts project that 30-year fixed mortgage rates are likely to remain in the mid-6% range over the next several years. This suggests modest movement rather than a dramatic drop.
Experts caution that “mortgage rates are not expected to fall significantly in the next five years” unless there is a major economic disruption such as a recession or financial crisis.
What Could Change the Forecast
Long-term projections always come with uncertainty. Mortgage rates could move sharply if Treasury yields deviate from expectations, if the spread narrows or widens unexpectedly, or if Federal Reserve policy shifts dramatically.
Conclusion
While mortgage rates have eased slightly, long-term forecasts point to stability rather than a return to ultra-low levels. With Treasury yields expected to stay elevated, borrowers should plan for mortgage rates that remain higher than what many homeowners saw in the past decade.
Share Your Thoughts
Do you think mortgage rates will fall faster than expected, or stay high for years? Are you waiting to buy or refinance? Share your thoughts and local market experience in the comments below.
