CHARLOTTE, N.C.–One team of researchers at Bank of America said mortgage rates could move as low as 5% if certain actions are taken.
BofA’s mortgage-backed securities (MBS) research team said in a statement that it “does see a path to a 5% mortgage rate” as long as the Fed pulls off two actions: quantitative easing (QE) in mortgage-backed securities and aggressive yield-curve control to the point that 10-year Treasury yields come down to 3.00%-3.25%.
The 10-year, of course, serves as a benchmark for 30-year fixed mortgage rates.
Note From the ‘Situation Room’
In a “Situation Room” note, the researchers said the baseline expectation is for mortgage rates to end both 2025 and 2026 at 6.25%—a moderate decline from the current national average near 6.35%, which BofA acknowledged was a big improvement from 6.9% recently. That’s based on a 10-year Treasury yield of about 4.00% and about 4.25% by year-end 2026, Fortune reported.
But the Fortune report also noted that while Wall Street is rallying behind the possibility, even a drop to 5% likely won’t bring broad relief to American homebuyers facing tight affordability pressures.
Two Potential Scenarios
Lance Lambert, co-founder and editor-in-chief of ResiClub, told Fortune he sees one of two scenarios playing out. In a hypothetical scenario where the unemployment rate spiked and the economy weakened, he said financial markets “could respond with a flight to safety—driving up demand for Treasuries, which would push bond prices higher and yields (including mortgage rates) lower.”
In the case of a recession materializing, Lambert told Fortune the Fed could respond with emergency cuts to the federal funds rate and, “if the downturn were severe enough, potentially resume purchases of mortgage-backed securities, adding further downward pressure on mortgage rates.”
He added that most scenarios for a much steeper mortgage decline would either be from the economy and/or the labor market souring, Fortune said.
