Interest rates are likely to come down later this year, with the Federal Reserve on track to start cutting rates. But mortgage rates might not follow as quickly.
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That is because mortgages, and mortgage-backed bonds, just aren’t as in demand in financial markets as they were in the years before the Fed began to start to tighten in 2022. And they might not be for a while.
The extra yield over Treasurys—or spread—demanded by investors to own mortgage-backed securities issued by government-sponsored enterprises such as
Fannie Mae or Freddie Mac, known as agency MBS, has come down a bit from the highs touched last year. But it still hasn’t narrowed back to historical levels. Wider spreads appear to be a new normal for the mortgage market. That in turn means homebuyers for now can expect to keep paying relatively higher rates.
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