Why Experts Say Mortgage Rates Should Ease Over the Next Year

You want mortgage rates to fall – and they’ve started to. But is it going to last? And how low will they go?

Experts say there’s room for rates to come down even more over the next year. One of the leading indicators to watch is the 10-year Treasury yield. Here’s why.

The Link Between Mortgage Rates and the 10-Year Treasury Yield

For over 50 years, the 30-year fixed mortgage rate has closely followed the movement of the 10-year treasury yield, which is a widely watched benchmark for long-term interest rates (see graph below):

When the treasury yield climbs, mortgage rates tend to follow. And when the yield falls, mortgage rates typically come down.

It’s been a predictable pattern for over 50 years. So predictable that several experts consider the gap between the two normal. It’s known as the spread, and it typically averages around 1.76 percentage points, or approximately 176 basis points.

The Spread Is Shrinking

Over the past couple of years, though, that spread has been much wider than usual. Why? Think of the spread as a measure of fear in the market. When there’s lingering uncertainty in the economy, the gap widens beyond its usual norm. That’s one of the reasons why mortgage rates have been unusually high over the past few years.

But here’s a sign for optimism. Even though there’s still some lingering uncertainty related to the economy, that spread is starting to shrink as the path forward is becoming clearer (see graph below):

And that opens the door for mortgage rates to come down even more. As a recent article from Redfin explains:

“A lower mortgage spread equals lower mortgage rates. If the spread continues to decline, mortgage rates could fall more than they already have.”

The 10-Year Treasury Yield Is Expected To Decline

It’s not just the spread, though. The 10-year Treasury yield itself is also forecast to decline in the months ahead. So, when you combine a lower yield with a narrowing spread, you have two key forces potentially pushing mortgage rates down going into next year.

This long-term relationship is a significant reason why experts currently project that mortgage rates will ease, with a slight possibility that they may reach the upper 5s by the end of next year.

Here’s how it works. Take the 10-year treasury yield, which is sitting at about 4.09% at the time this article is being written, and then add the average spread of 1.76%. From there, you’d expect mortgage rates to be around 5.85% (see graph below):

However, remember that all of this can change as the economy shifts. And be aware that there will be ups and downs along the way.

How these dynamics play out will depend on where the economy, the job market, inflation, and more go from here. However, the 2026 outlook is currently expected to be a gradual decline in mortgage rates. And as of now, things are starting to move in the right direction.

Bottom Line

Keeping up with all of these shifts can feel overwhelming. That’s why having an experienced agent or lender on your side matters. They’ll do the heavy lifting for you.

If you want real-time updates on mortgage rates, let’s connect so you have someone to keep you informed and help you plan your next move.