The Federal Reserve’s recent interest rate target reductions have left many Americans waiting for mortgage rates to follow suit, but according to experts, this may not be the case for some time. Jordan Jackson, a global market strategist at J.P. Morgan Asset Management, predicts that mortgage rates will likely hover around 6.5 to 7% and may not fall significantly.
Mortgage rates are more closely tied to long-term borrowing rates for government debt, such as the 10-year Treasury note yield, which has been increasing recently as investors anticipate more expansionary fiscal policies in 2025. Additionally, signals from the market for mortgage-backed securities also play a role in determining mortgage rates.
The Federal Reserve’s management of its mortgage-backed securities portfolio, also known as quantitative easing, can influence mortgage rates. During the pandemic, the Fed bought large amounts of mortgage-backed securities to adjust demand and supply dynamics in the bond market, leading to record-low mortgage rates in 2021.
However, since 2022, the Fed has been reducing its balance sheet through a process called quantitative tightening, which may add pressure to the spread between mortgage rates and Treasury yields, potentially driving mortgage rates upwards. Experts suggest that this phenomenon, in combination with the 10-year Treasury note yield increasing, may prevent mortgage rates from decreasing.
As a result, homeowners seeking relief from high mortgage rates may need to wait, and even then, may not see significant relief in the near future.
