The stable nature of mortgage rates in recent weeks is partly linked to the stability in mortgage spreads. The spread between the 30-year mortgage rate and the 10-year Treasury rate is above its historical average of 1.60% to 1.80%, but at 2.19% in the current data, it is much lower than where it was in late 2023 and late 2024.
“Mortgage spreads were the unsung superheroes of the housing sector this year, as we wouldn’t have mortgage rates near 6 percent without their improvement,” HousingWire lead analyst Logan Mohtashami wrote over the weekend.
Despite the ongoing friction between employment data and inflation data that could pull the economy in opposite directions, interest rate traders are confident the Federal Reserve will cut benchmark rates on Dec. 10.
CME GroupThe FedWatch tool shows that 87% of traders are expecting a 25 bps cut, which would bring the federal funds rate to 3.50% to 3.75%. It hasn’t been this low since September 2022.
Roshan MLS Chief economist Lisa Sturtevant said last week that she did not expect much movement for mortgage rates despite a third straight Fed cut.
“We are entering the traditionally slowest period for the housing market. Monthly home sales are lowest in November, December and January. Listing activity slows during the winter as prospective sellers set their sights on early spring,” Sturtevant said in written comments.
“We’re in a ‘wait and see’ housing market heading into 2026. Both buyers and sellers on both sides are watching, not only to see where mortgage rates and the economy are headed, but also how confident they feel about their personal situations.”
What will the Fed do?
Under Jerome Powell’s watch, the Federal Reserve has generally been consistent with its monetary policy decisions. But the differences have widened in 2025 and were evident at the central bank’s late October meeting, when Kansas City fed President Jeffrey Schmidt voted for no cut, while Gov. Stephen Maran voted for a larger cut of 50 bps.
An article published Monday by the Wall Street Journal highlighted the split. It listed four policymakers as “more likely to favor cuts” and five who were “less likely to favor cuts.” Powell, along with Gov. Lisa Cook and Vice Chair Philip Jefferson, could serve as swing votes because their positions are less clear.
Beyond this month, the direction of interest rates may diverge further. President Donald Trump is expected to announce Powell’s replacement soon, and his choice is likely to align with Trump’s desire for much lower rates.
According to a recent Bloomberg report, Kevin Hassett is the front-runner for the Fed chair job. Hassett is the director The White House The National Economic Council and a Trump ally could push for lower rates on a faster timeline. Other candidates include current Fed governors Christopher Waller and Michelle Bowman. Former Fed Gov. Kevin Warsh; And Black Ark Executive Rick Reeder.
Whoever takes over as chair when Powell’s term ends in May 2026 will lead similar discussions on interest rate policy and its impact on housing demand. And according to Chief Economist Mark Fleming First Americanthere are other factors at play that will affect the volume of home sales and mortgage originations next year.
“A key driver for affordability is that household incomes are expected to grow faster than home prices next year,” Fleming said. “According to the New York Fed’s Survey of Consumer Expectations, the median expected household income is 2.8 percent. When income growth outpaces home price growth, home buying power improves—even if mortgage rates don’t drop meaningfully.
“This is a key driver of the nearly 33 percent improvement in affordability we expect between the end of this year and the end of 2026, which will return unemployment to levels not seen since the summer of 2022.”