Key takeaways
- Millions of homeowners with high mortgage rates are hoping for rates to come down so they can refinance.
- Rate movement is notoriously difficult to predict, though, especially in today’s volatile economic environment.
- If you’re anxiously awaiting lower rates, here are some economic bellwethers to keep an eye on.
Mortgage rates, which hit historically low levels during the COVID-19 pandemic, more than doubled in 2022 — the only time that’s ever happened since Freddie Mac began recording data in 1971. Even today, three years later, rates are still close to 7 percent, making affordability more challenging for prospective homebuyers.
It’s no surprise, then, that millions of homeowners now find themselves with relatively high mortgage rates. More than 17 percent of people with mortgages today have an interest rate above 6 percent, according to a recent Redfin study — and many of these borrowers look forward to rates dropping in the future so they can refinance their loan and lower their monthly payments.
The challenge, of course, is trying to figure out exactly when that might happen. Even professional housing economists have a hard time accurately predicting mortgage rates. Still, if you hope to refinance your mortgage as soon as possible, you can watch economic trends for clues. Here’s what to keep an eye on.
Federal Reserve actions
Sometimes headlines can be misleading, or even mistaken. Many people were led to believe that mortgage rates would fall in September 2024, when the Federal Reserve was expected to cut the fed funds rate. And certainly there was some logic in this thinking: Mortgage rates spiked in 2022 when the Federal Reserve started dramatically raising the fed funds rate in an effort to slow down runaway inflation.
Bankrate’s take:
Betting on mortgage rates going up or down in tandem with the Fed’s actions is often a losing wager.
The Fed did indeed cut rates in September, but instead of falling, mortgage rates actually began to rise. They continued rising, surpassing 7 percent in January before finally ticking back down into the high 6 percent range, where they remain today.
For longtime industry observers, this was simply a reminder that the Federal Reserve doesn’t control mortgage rates, and there’s not a direct relationship between the fed funds rate and mortgage interest rates. So betting on mortgage rates going up or down in tandem with the Fed’s actions is often a losing wager.
10-year Treasury bonds
A more accurate metric to follow is the yield on 10-year U.S. Treasury bonds. Historically, interest rates on 30-year mortgages have been 1.5 to 2 points higher than these bond yields; so a bond yield of 4 percent would typically mean that mortgage rates would be somewhere between 5.5 and 6 percent.
Keep in mind:
As a general rule of thumb, as these bond yields go down, mortgage rates usually also go down.
The spread between those two rates has been a little higher over the past few years (sometimes as high as 2.5 to 3 points) due to some of the volatility and risk in the market as the economy recovered from the pandemic. But as a general rule of thumb, as yields go down, mortgage rates usually also go down, so this is a good measure to watch.
Inflation and unemployment rates
If bond yields are a bit too esoteric, it’s also possible to glean some information by following basic economic trends. Michael Fratantoni, chief economist of the Mortgage Bankers Association, suggests watching trends in inflation and employment numbers to get an idea of which way mortgage rates might be heading.
According to Fratantoni, rates are likely to be “higher when headlines are more focused on inflation and deficits, and lower when headlines are more focused on slowing global growth, recession risk and a weakening labor market.”
Rates are likely to be higher when headlines are more focused on inflation and deficits, and lower when they’re more focused on a weakening labor market.
— Michael Fratantoni
Chief economist, Mortgage Bankers Association
In today’s market, Fratantoni is watching inflation numbers, which he thinks might soon run higher due to the tariffs being implemented by the Trump administration, and job numbers, which could result in rates going down if unemployment goes up. Fratantoni also notes that discussions about the federal budget, deficit projections and proposed changes to tax laws could all have an impact.
Overall economic strength
Along those lines, the strength of the economy itself can help predict mortgage rate direction. A strong economy with good job growth, strong wage growth and slightly higher-than-normal inflation usually leads to higher interest rates for both short-term loans and longer-term ones, like mortgages.
On the other hand, slower GDP growth, dormant wages and rising unemployment are often accompanied by lower interest rates — a boon for borrowers who manage to keep their jobs and income during these economic lulls.
What drives these rates is sometimes more about what the market expects to happen than what’s actually happening.
— Mark Fleming
Chief economist, First American
Interestingly, it’s sometimes more about what the market expects to happen than what’s actually happening that drives these rates, according to Mark Fleming, chief economist for First American Financial Corporation.
“One reason the 10-year Treasury is not following the fed funds rate is because inflation expectations are higher or staying elevated,” Fleming says. “Why accept a lower yield on a 10-year bond, even as the Fed cuts rates, if you expect inflation to stay higher than the Fed target?”
In fact, Fleming points out, inflation expectations had climbed higher for three consecutive months as of March 2025, according to the University of Michigan consumer survey. If Fleming is correct, we could actually see yields on 10-year bonds go up, and take mortgage rates up with them, this spring.
Remember: The experts are often wrong about mortgage rates
Mortgage rates are notoriously difficult to predict, because they change as market conditions change. Some economists were forecasting rates as low as 5.5 percent by the end of 2024, and almost no one saw the sort of whipsaw effect that happened back in 2022 coming.
While it’s possible to view economic trends and their impact on the bond market as a way to gauge the general direction mortgage rates might be headed, there’s really no way to determine with any certainty how much movement we’ll see in interest rates, or exactly when they’ll move.
Timing the mortgage market is almost as difficult as timing the stock market, and few succeed at doing either particularly well. But these directional signals can help make sure you’re ready to move instantly if rates do go down — and potentially save yourself thousands of dollars over the life of your loan.
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