Mortgage rates, which have historically reached low levels during the Covid-19 pandemic, have more than doubled in 2022. This is the only time that has happened so far since Freddie Mac began recording data in 1971. Even today, even three years later, the rate is close to 7%, making affordable for future home buyers even more difficult.
So it’s no surprise that millions of homeowners now find themselves at relatively high mortgage rates. A recent Redfin survey shows that over 17% of people with mortgages today have interest rates above 6%. Many of these borrowers look forward to a decline in the future, so they can refinance their loans to reduce their monthly payments.
The challenge, of course, is to try and figure out exactly when it will happen. Even professional housing economists struggle to accurately predict mortgage rates. Still, if you want to refinance your mortgage as quickly as possible, you can look at the economic trends that are the cues. Here’s something to keep an eye on.
Federal Reserve System
Sometimes headlines can be misleading. Many were led to believe that mortgage rates would fall in September 2024, when the Federal Reserve was expected to cut Fed funds. And certainly there were some logic to this idea: When mortgage rates surged in 2022, the Federal Reserve began dramatically raising funds for the Fed to slow down runaway inflation.
The Fed actually cut interest rates in September, but instead of falling, the mortgage rate actually began to rise. They continued to rise, going above 7% in January before finally returning to the 6% range.
For longtime industry observers, this reminded us that the Federal Reserve does not control mortgage rates and that there is no direct relationship between Fed fund rates and mortgage rates. Therefore, betting on mortgage fees that go up and down in conjunction with the Fed’s actions is often a lost bet.
Financial debt for 10 years old
A more accurate metric is the yield on US Treasury debts over a decade. Historically, interest rates on 30-year mortgages have been 1.5-2 points higher than these bond yields. Therefore, a bond yield of 4% means that the mortgage rate is usually between 5.5 and 6%.
The spread between these two rates has been a little higher in the past few years due to some of the market volatility and risks as the economy recovers from the pandemic (sometimes 2.5 to 3 points). However, as a general rule of thumb, the mortgage rates also fall as yields drop, so is this a good measure to watch.
Inflation and unemployment rate
If bond yields are a bit esoteric, it is also possible to collect some information by following basic economic trends. Michael Fratantoni, chief economist at the Mortgage Bankers Association, suggests watching trends in inflation and employment numbers to see how mortgage rates are heading.
Prices could be higher when headlines focus on inflation and deficits, while headlines focus on global growth, recession risks and weaker labor markets,” according to Fratantoni.
If the headline is focused more on inflation and deficits, the rate is likely to be higher, and if it is focused on weakening the labour market, it is lower.
– Michael Fratantoni
Chief economist of the Mortgage Bankers Association
In today’s market, Fratantoni monitors inflation numbers. He believes it could go up soon because tariffs are being implemented by the Trump administration and as unemployment rates increase, fees could drop. Fratantoni also said discussions about the federal budget, deficit forecasts and proposed changes to tax laws could all have an impact.
Overall economic strength
Along these lines, the strength of the economy itself can help predict the direction of mortgage rates. A strong economy with good employment growth, strong wage growth and slightly higher than usual leads to higher interest rates, usually on both short-term and long-term loans like mortgages.
Meanwhile, growth in GDP, dormant wages and rising unemployment rates are often accompanied by low interest rates. This is a boon for borrowers who have been able to maintain employment and income during these economic lulls.
What drives these rates is more about what the market is about, than what’s actually happening.
– Mark Fleming
Chief Economist, First American
Interestingly, it’s sometimes about what the market is I look forward to it It can happen more than what’s actually happening that drives these rates, according to Mark Fleming, chief economist at First American Financial Corporation.
“One of the reasons the Treasury hasn’t followed the Fed’s funding rate in 2010 is that inflation expectations are either high or continue to rise,” Fleming says. “Why accept low yields of 10 years of bonds despite the Fed’s reductions when we expect the Fed to be higher than the Fed’s target?”
In fact, according to the University of Michigan Consumer Survey, Fleming noted that in March 2025, inflation expectations had risen for the third consecutive month. If Fleming was right, the 10-year bond yields actually rose, allowing mortgage rates to rise this spring.
Remember: Experts are often wrong about mortgage fees
Mortgage rates are notoriously difficult to predict as they change as market conditions change. Some economists had predicted a low rate of 5.5% by the end of 2024, but few people have seen the whipping effect that occurred in 2022.
While it is possible to view economic trends and impact on the bond market as a general way of measuring direction, it may improve mortgage rates, there is no way to determine with certainty how much movement is seen in interest rates or whether they will move accurately.
The timing of the mortgage market is roughly as difficult as the timing of the stock market, and it is rare to succeed in doing anything particularly well. However, these directional signals can help you make sure you are ready to move as soon as the rate drops.
