Bank of America analysts say there is a realistic path for the average 30-year mortgage rate in the U.S. to reach about 5%, but only if the Federal Reserve takes two bold policy steps. The call comes as mortgage rates hover above 6%, squeezing affordability and dampening housing demand.
“It Starts With MBS Buying”
According to BofA, the first requirement is for the Fed to return to large-scale purchases of mortgage-backed securities (MBS). In past downturns, such purchases have pushed borrowing costs lower by driving up bond prices and reducing yields. Analysts argue that without the Fed actively supporting the MBS market, spreads remain too wide for rates to fall meaningfully.
“Yield Curve Control Is the Other Lever”
The second factor is yield curve control, a policy where the Fed commits to holding long-term Treasury yields within a target range. BofA suggests the 10-year Treasury would need to fall to around 3.00–3.25% for mortgage rates to settle near 5%. This would require direct or indirect Fed intervention to prevent yields from rising despite market pressures.
Economic Backdrop and Challenges
Today’s 30-year fixed mortgage rate sits at about 6.35%, well below last year’s peaks but still far from affordable territory. Spreads over Treasuries remain elevated, limiting the full impact of falling policy rates. BofA notes that moving to 5% would likely require significant economic weakening, giving the Fed political cover to launch aggressive easing.
The risks are high: yield curve control is untested in U.S. markets, and large-scale MBS buying could reignite inflation worries. Political scrutiny would be intense, and markets may resist if they see policy as unsustainable.
What It Would Mean for Borrowers
If BofA’s scenario plays out, homebuyers would feel immediate relief. A drop to 5% could bring millions of households back into affordability, stimulate home sales, and spark a refinancing boom. However, if rates fall because of a faltering economy, demand could remain muted despite cheaper credit.
