Yesterday, I discussed how 10-Year Treasury yields respond to the initial rate cut in a Fed easing cycle and its impact on consumers. Today, let’s take a deeper look at the connection between 10-year yields and 30-year mortgage rates following the beginning of a Fed easing cycle.
Historically, the median change in longer-duration Treasury yields has been relatively muted. Looking back at the nine rate cuts since 1974, the median change in 10-Year Treasury yields 12 months after the initial rate cut is +1.3%. Given the close correlation between 10-year yields and mortgage rates, we should see a similar trend in mortgages.
Data shows the median change in the 30-year mortgage rate one year after the first rate cut is -2.2%, closely tracking the 10-year yield’s behavior. Typically, mortgage rates decline during the first six months after a rate cut, bottom, and then slowly rise—mirroring the path of longer-dated Treasury yields.
Using this historical pattern as a guide, we could see mortgage rates dip from the current U.S. average of 6.1%, bottoming around 5.7% in six months and ending at 5.9% in September 2025. While this is lower than today’s rates, it’s important to note that this is not the drastic decline seen in 2019-2020 when mortgage rates dropped over 20% that many potential home buyers are hoping for. History suggests that such a significant drop is unlikely in the current environment.
For prospective homebuyers, the real challenge in today’s housing market isn’t mortgage rates—it’s home prices. Mortgage rates today are the second-lowest they’ve ever been at the start of a Fed easing cycle, with only 2019 seeing lower rates. Greater affordability will likely have to come from home prices declining, rather than a substantial drop in rates.
