"In 2025, my forecast for mortgage spreads was for them to improve by 0.27%-0.41% using a 2025 average of 2.54%. As volatility compresses and the Federal Reserve continues its rate-cut cycle, much like in 2024, the spreads should improve. With mortgage spreads down to 2.15% last week, the improvement reached 0.39%, so we are almost at the peak of my forecast. So, if we see more improvement, then my 2025 forecast was actually too conservative."
"Mortgage rates would not have reached a yearly low this year if it weren't for improved mortgage spreads in 2025. The 10-year yield hasn't come close to the lows we saw last year at 3.62% intraday, so the spreads have had to do some significant lifting in 2025. If the spreads today were as bad as they were at the peak of 2023, mortgage rates would currently be 0.95% percentage points higher."
"Conversely, if the spreads returned to their normal range, mortgage rates would be 0.55% to 0.35% lower than today's level. If we had the best levels of normal spreads, we would have mortgage rates at 5.83% to 6.03% today. In my 2025 forecast, I anticipated the following ranges: Mortgage rates between 5.75% and 7.2"
Mortgage spreads measure the gap between the 10-year yield and 30-year mortgage rates and have normally ranged between 1.60% and 1.80% in recent history. Spreads surged to 3.10% in 2023, pushing mortgage rates much higher and weakening affordability. In 2025 spreads compressed to as low as 2.15%, contributing materially to lower mortgage rates and stronger housing demand despite 10-year yields remaining well above last year’s lows. Forecasts for 2025 projected average spreads near 2.54% and improvements of roughly 0.27%–0.41%. If spreads returned to normal, mortgage rates could fall by roughly 0.35%–0.55%; at 2023 peak spreads, rates would be about 0.95 percentage points higher.
Read at www.housingwire.com
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