Mortgage rates are set to fall back to earth after an unprecedented climb, making homes more affordable, Bank of America analysts say
The Fed's efforts to curb inflation seem to be working in the eyes of investors. The expectation for the two-year inflation rate has dropped to 3.2% from 4.4% in mid-June, according to Bloomberg. Housing costs are a crucial piece of measuring inflation, and higher mortgage rates have had aA key metric to look at is the difference between the yield on a 10-year Treasury note — a common benchmark in debt markets — and the rate for a 30-year mortgage. Today the 30-year mortgage rate of 5.
The 10-year Treasury yield has dropped by 0.75 percentage points since mid-June, to about 2.75%, a level that Bank of America expects to see at year end. It says mortgage rates will keep falling if interest-rate volatility declines, narrowing their distance from the 10-year Treasury yield. If that spread reverts to the historical average, that would put the 30-year mortgage rate at about 4.5%.
"We expect this to happen and see it as improving the affordability outlook for housing," the Bank of America analysts, led by Chris Flanagan, wrote. In a monthly forecast released July 18, the Mortgage Bankers Association predicted a more modest drop in mortgage rates, putting the 30-year rate at 5.2% at year end.Subscribe to push notifications
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