Friday, June 10, 2016

Mortgage Rates and Ten Year Yield

by Bill McBride on 6/10/2016 09:38:00 AM

With the ten year yield falling to 1.65%, there has been some discussion about whether mortgage rates will decline to new lows. Based on an historical relationship, 30-year rates should currently be around 3.55%.

As of yesterday, Mortgage News Daily reported: Mortgage Rates Even Closer to All-Time Lows

If rates are able to move any lower from here, that will put them in line with all-time lows. That would connote an average conventional 30yr fixed rate of 3.375%, which isn't too far away considering more than a few lenders are quoting 3.5% on top tier scenarios today. 3.625% remains slightly more prevalent.
emphasis added
The graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

Mortgage rates and 10 year Treasury YieldCurrently the 10 year Treasury yield is at 1.65% and 30 year mortgage rates were at 3.60% according to the Freddie Mac survey last week.  The Freddie Mac survey will  probably show lower rates this week.

To reach new lows (on the Freddie Mac survey), mortgage rates would have to fall below the 3.35% lows reached in 2012.

For that to happen, based on the historical relationship, the Ten Year yield would have to fall to around 1.5%.

So I don't expect new lows on mortgage rates unless the Ten Year yield falls further - but rates are getting close.