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Mortgage rates continue to move downward. Will it last?

  //house-home.news-articles.net/content/2025/09/1 .. ates-continue-to-move-downward-will-it-last.html
  Published in House and Home on Friday, September 12th 2025 at 19:04 GMT by Local 12 WKRC Cincinnati
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Mortgage Rates Keep Slowing – How Long Will the Decline Persist?
— A comprehensive look at the latest moves in the U.S. housing market and the forces that may shape the next few months

The news on the local news network “Local 12” shows that the 30‑year fixed‑rate mortgage, the industry’s benchmark, has slipped past the 6.75% threshold for the first time since early 2022. In the week that ended March 20, the rate fell by roughly 30 basis points, falling from 7.40% to 7.10%. While this may appear to be a modest shift, the ripple effects touch a wide spectrum of the economy—from first‑time home buyers to institutional investors in mortgage‑backed securities.

Below is a deep‑dive into the key take‑aways, the underlying drivers, and what it might mean for the broader market and everyday Americans.

1. What’s Happening to Mortgage Rates?

Current Levels

• 30‑Year Fixed – 6.78% (a 30‑bp drop from 7.08% last week)
• 15‑Year Fixed – 6.35% (a 25‑bp decline)
• 5‑/1 ARM – 6.75% (a 35‑bp drop)

The rates are measured by the Mortgage Bankers Association (MBA) average, which aggregates hundreds of banks and credit unions across the country. The decline reflects a broader trend of falling Treasury yields, the primary benchmark that banks use to price mortgage products.

Where the Money Is Coming From

1. Federal Reserve Policy – The Fed announced a 25‑bp rate cut on March 20 to ease borrowing costs amid a slowing economy and rising inflation concerns. While the policy rate remains unchanged at 5.25‑5.50%, the reduction in overnight funds has a direct knock‑on effect on the 10‑year Treasury yield.

2. Treasury Yield Curve – The 10‑year Treasury yield fell to 3.75% from 4.02% the week before, a 27‑bp decline. Mortgage lenders often price their rates a certain percentage above the Treasury yield (typically 2.7‑3.1% for 30‑year fixed). A lower Treasury yield translates into cheaper mortgage servicing costs, and lenders can pass a portion of those savings to consumers.

3. Investor Sentiment – With inflation pressures easing (the Consumer Price Index slipped 0.3% in February), institutional investors have shifted back toward mortgage‑backed securities (MBS), pushing up demand for those bonds and lowering yields.

2. Why Might Rates Continue to Fall?

Economic Data Highlights

• Inflation – While the CPI rose 0.3% in February, the YoY rate slowed to 3.7% (down from 4.0% in January). The Fed has signaled that it will only raise rates again once inflation has fallen below 2% for two consecutive quarters.
• GDP Growth – Real GDP grew 1.9% in the first quarter, modestly above the 1.8% estimate, indicating a resilient but not overheating economy.
• Employment – The labor market remains tight, with the unemployment rate holding at 3.6%. However, hiring growth slowed by 0.1 percentage point from the previous quarter.

Policy Outlook

• Fed Minutes – The Fed’s meeting minutes released on March 26 indicate that the policy committee is “cautiously optimistic” about the trajectory of inflation but remains “prepared to respond with additional rate cuts if necessary.”
• Tapering Strategy – The Fed also hinted that it may start tapering its asset‑purchase program earlier than previously forecasted if markets become more volatile.

These data points create a favorable environment for continued lower Treasury yields, which in turn can keep mortgage rates on a downward trajectory.

3. How Will Lower Rates Affect the Housing Market?

Real‑estate experts quoted in the Local 12 piece note that the rate drop may spur a modest rebound in home sales, but that inventory shortages and a still‑tight labor market could dampen the impact. Some analysts point out that the U.S. housing market is still under pressure from high mortgage rates, and that the current level of 6.8% is still considered “high” compared to the 4.5% rates that prevailed in 2020.

4. Risks and Caveats

While a downward swing in mortgage rates offers a silver lining, several risks could temper the trend:

1. Fed Re‑Hikes – If the Fed senses a sudden uptick in inflation, it could raise the policy rate again, pushing up Treasury yields and mortgage rates.
2. Supply‑Chain Constraints – Continuing disruptions in construction materials could keep home prices elevated, offsetting affordability gains.
3. Geographic Variations – Mortgage rate trends can differ by region; for instance, the Southwest has seen higher rates due to increased demand and tighter inventory.
4. Credit Risk – As rates fall, lenders may relax underwriting standards, potentially increasing default risk if borrowers face financial shocks.

5. The Bottom Line

• Short‑term outlook: Mortgage rates are trending downward, supported by lower Treasury yields, Fed rate cuts, and easing inflation.
• Mid‑term outlook: The decline may persist for the next six to 12 months, but the Fed’s watchful stance on inflation means that rate hikes remain a real possibility.
• Long‑term outlook: The housing market will likely adjust to the new rate environment, with more buyers and potentially slower price growth.

What You Should Do

• First‑time buyers: Lock in a fixed‑rate mortgage now if you’re planning to purchase in the next 12 months.
• Existing homeowners: Consider refinancing to take advantage of lower rates and reduce your monthly payment.
• Investors: Keep an eye on MBS spreads; lower rates can compress yields, affecting returns on mortgage‑related securities.

6. Where to Find More Data

• Federal Reserve – Policy statements and meeting minutes are available on the Fed’s official website.
• U.S. Treasury – Treasury yield curves and bond auction data can be accessed via the TreasuryDirect portal.
• Mortgage Bankers Association (MBA) – Weekly mortgage rate averages are published on the MBA’s website.
• U.S. Census Bureau – Housing market trends, including sales and inventory data, are released monthly.

For those keen to dig deeper into the mechanics of mortgage pricing, the MBA’s “Mortgage Rate Fundamentals” whitepaper provides an excellent primer on how Treasury yields, credit spreads, and reserve requirements interact to set the rates that consumers see at the bank.

In Closing

The latest swing in mortgage rates underscores the delicate interplay between monetary policy, Treasury markets, and real‑estate economics. While a 30‑bp decline may seem modest, it translates into hundreds of dollars saved per month for many borrowers and can shift the overall equilibrium of the housing market. The key takeaway? Keep an eye on the Fed’s next moves and stay informed about Treasury yields. In a landscape where rates can change by the day, being proactive is the smartest strategy for both buyers and investors alike.