Could Mortgage Rates Really Fall to 5%?
🔗Bank of America’s research team recently laid out what it would take for mortgage rates—currently hovering around 6.3%—to slide closer to 5%. Spoiler: it’s not simple. Their “path” depends on the Fed firing up quantitative easing (buying mortgage-backed securities again) and putting a tight lid on Treasury yields through aggressive yield-curve control.
Even if those moves lined up perfectly, affordability challenges would still loom large. As Fortune reports, housing demand remains sluggish despite recent rate dips, and Zillow estimates rates would need to hit about 4.43% before the “average” home becomes affordable for the “average” buyer.
📉 The BofA Scenario
BofA’s baseline forecast? Mortgage rates end 2025 and 2026 near 6.25%, only a modest drop from today’s levels. That’s assuming the 10-year Treasury hangs out around 4.00%–4.25%. To crack 5%, the 10-year would need to tumble closer to 3.00%–3.25%.
⚖️ What Could Drive Rates Lower
Two possible catalysts:
A Fed pivot back to bond buying (quantitative easing).
A weaker economy or labor market, sparking a “flight to safety” into Treasuries that drives yields down.
As 🔗ResiClub’s Lance Lambert noted, a recession would likely force the Fed to slash the federal funds rate and potentially resume mortgage-bond purchases—both of which would pull mortgage rates lower.
🏡 Why Lower Rates Alone Might Not Help
History shows falling rates don’t guarantee affordability. After the September 2024 Fed cut, mortgage rates briefly eased, but affordability barely budged. Rising Treasury yields, tight housing supply, and builder stock pullbacks undercut any relief.
Even if rates dropped to 5%, affordability headwinds remain fierce—especially in high-cost markets like New York, LA, and Miami where even a hypothetical “0% rate” wouldn’t close the gap.
⚡ Closing Thoughts
At the end of the day, the “path to 5%” is possible but far from guaranteed. Even if the Fed pulls out its biggest policy tools, affordability challenges tied to supply, pricing, and local market dynamics will remain. That’s why waiting for the “perfect” rate often means missing opportunities right in front of you.
✅ Let’s put a plan together now—whether rates move or not—so you’re ready to make the most of the market when the time is right. Reach out today to get started.
