The Main Reason Mortgage Rates Are So High

 

Today’s mortgage rates are top-of-mind for many homebuyers right now. As a result, if you’re thinking about buying for the first time or selling your current house to move into a home that better fits your needs, you may be asking yourself these two questions: 

Why Are Mortgage Rates So High?

The 30-year fixed-rate mortgage is largely influenced by the supply and demand for mortgage-backed securities (MBS). Demand for MBS helps determine the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Historically, the average spread between the two is 1.72.

Last Friday morning, the mortgage rate was 6.85%. That means the spread was 3.2%, which is almost 1.5% over the norm. If the spread was at its historical average, mortgage rates would be 5.37%.

This large spread is very unusual. The good news is, that means there’s room for mortgage rates to improve today. So, what’s causing the larger spread and making mortgage rates so high today? Simply put: when there’s less risk, demand for MBS is high, so mortgage rates will be lower. On the other hand, if there’s more risk with MBS, demand for MBS will be low, and we’ll see higher mortgage rates as a result. Currently, demand for MBS is low, so mortgage rates are high. 

When Will Rates Go Back Down?

Odeta Kushi at First American says in a recent blog: “It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal and provides investors with more certainty. However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”
 
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