There are three things that could happen which would send mortgage rates lower. First, Bond Yields could fall to record low levels. Bond Yields are a reflection of the economic and inflation outlook. If the economic outlook is bleak, mortgage rates will fall further based on lower Bond Yields. Secondly, credit spreads could shrink. Third, banks could increase competition to attract new home buyers, which would send mortgage rates lower. Banks could see their profits coming under pressure, so lowering mortgage rates could be a way to increase profits in the future.
- For mortgage rates to fall further to record lows bond yields must also fall.
- A fall in mortgage rates will also need credit spreads to reduce from their current level.
- Lastly, mortgage rates will fall in an environment where banks are forced to compete for mortgage customers.
“In the United States, Fannie Mae predicts the benchmark 30-year mortgage rate will fall about 20 bps within nine months or so. That would officially put it in the 2% range for the first time ever.”