Mortgage rate predictions for the next 5 years

Core Insights - The Federal Reserve's recent interest rate cut and potential future cuts, along with a government shutdown, raise questions about the long-term direction of mortgage rates [1][12] - Mortgage rates are closely linked to the 10-year Treasury yield, and a five-year forecast has been developed based on this correlation [2][9] Treasury Yield Forecast - Economists predict the 10-year Treasury yield will remain around 4.5% for the rest of 2023, declining to 4.1% by 2027 [4][5] - The Congressional Budget Office forecasts a similar trend, projecting a yield of 4.1% by the end of 2025, decreasing to 3.9% by 2029 [5] Mortgage Rate Spread - The spread between the 10-year Treasury yield and 30-year fixed mortgage rates has averaged around 2.5 percentage points in recent years, compared to under 2 percentage points from 2010 to 2020 [6][14] - As of September 24, 2023, the 10-year Treasury yield was 4.16%, resulting in a mortgage rate of 6.3% with a spread of 2.14 percentage points [6] Five-Year Mortgage Rate Forecast - The five-year mortgage rate forecast incorporates the predicted Treasury yields and the estimated spread, suggesting mortgage rates will be around 6.2% to 6.4% by 2027 [11][12] - Current estimates indicate that mortgage rates are not expected to drop significantly in the next five years, barring major economic disruptions [12] Historical Context and AI Insights - Historical averages suggest a spread of approximately 1.7 percentage points during the 2010s, while recent estimates range from 2.1 to 2.3 percentage points [7][14] - The latest AI models suggest using a spread of 2.1 to 2.3 percentage points for future forecasts [7]