Fed policy drives roughly 65%–75% of where the 10-year yield and mortgage rates can range. Mortgage rates sit near prior lows at about 6.51%, only 0.1 percentage point below the previous low. Mortgage spreads improved in 2025 and are behaving in line with typical economic-cycle patterns. Spread improvement enabled the year-to-date low in mortgage rates despite a 10-year yield around 4.28%. If spreads matched the 2023 peak, mortgage rates would be about 0.84% higher. If spreads returned to a normal range, mortgage rates would be roughly 0.46%–0.66% lower. Historical spreads ranged between 1.60% and 1.80%.
It's been a crazy headline year between the Fed, President Trump, tariffs, The 10-year yield and mortgage rates. But if you take all the noise out of the equation and you believe, like I do, that Fed policy really drives 65%-75% of where the 10-year yield and mortgage rates can range, than rates this year look about right. Mortgage rates are currently just 0.1 percentage point lower than the previous low, as reported by Mortgage News Daily, which listed rates at 6.51% today.
Setting the Fed drama aside for a moment, the real highlight for 2025 is the mortgage spreads, which are behaving as they traditionally do at this point in the economic cycle they are improving. Without the improvement in mortgage spreads this year, mortgage rates would not have reached a year-to-date low today, particularly because the 10-year yield is currently at 4.28%.
Now this is using data that we add to our weekly Housing Market Tracker, but it gives you an idea of where rates would be today if the spreads were as bad as they were in 2023 or if they were back to normal. From last week's tracker: If the spreads were as bad as they were at the peak of 2023, mortgage rates would currently be 0.84% higher.
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