After two years of steep borrowing costs, many economists now expect mortgage rates to edge lower over the next 12 months.
1. Inflation Is Easing (Slowly).
Price growth has cooled from its 2022 peak, reducing pressure on the Federal Reserve to keep rates high. While inflation may hover above 2%, the trend is downward — a key factor in bringing mortgage rates down.
2. Treasury Yields Are Softening.
Mortgage rates track the 10-year U.S. Treasury yield, which has begun to decline as investors anticipate slower growth and fewer Fed hikes.
3. Wide Market Spreads Could Shrink.
The gap between Treasury yields and mortgage rates remains unusually large due to risk concerns. As confidence improves, that spread could narrow, further easing rates.
4. The Outlook.
Experts don’t expect a return to pandemic-era lows, but a gradual drop is plausible by late next year — a welcome reprieve for buyers.
Bottom Line:
Cooling inflation, lower Treasury yields, and a stabilizing economy all point to a slow, steady decline in mortgage rates rather than a sudden plunge.