The Federal Reserve’s use of high interest rates to tame inflation might not be the housing’s industry’s biggest problem right now. More significant may be the bond market, and specifically, spreads between treasuries and mortgage rates, CNBC reports.
Despite the recent spate of good economic news, the mortgage market isn’t sending the signal homebuyers need on housing affordability. To understand why, you need to look at the spread between the bond market and the mortgage market.
Traditionally, spreads widen when markets fear a recession, but while the 10-year treasury rate fell due to lower inflation numbers last week, the spread between the bond market and the mortgage market is still wide—almost double its historical average, in fact.
There is a historically wide difference between the 10-year treasury bond, a benchmark for pricing mortgages, and the actual price of an average 30-year loan. Usually around 1.75 percentage points, and as low as 1.3 in 2021, the so-called mortgage spread is hovering at more than 3 percentage points now. And that is propping up mortgage rates, keeping homeowners from selling their homes and buying nicer ones, and hurting first-time buyers, [Lawrence Yun, chief economist for the National Association of Realtors] said.
Read more
