Interest Rates- September 2025

What’s Causing the Drop (And What’s Holding Rates Up)

✅ Factors Helping Rates Fall

1. Treasury Yields Dropping
   Mortgage rates are heavily influenced by the yield on U.S. Treasury bonds (especially the 10-year Treasury). When those yields fall, mortgages tend to get cheaper. We’ve seen a recent decline there, which has helped pull mortgage rates down.

2. Expectations of Federal Reserve Action
   There’s been strong market betting that the Fed will cut its benchmark federal funds rate—some projections expect a modest rate reduction. This tends to reduce long-term rates as well (though with a lag).

3. Weaker Economic / Labor Data
   Signs of a cooling labor market, softer job growth, etc., reduce inflation pressure, which makes rate cuts more likely and makes lending environment less aggressive. This builds confidence among lenders and investors. 

⚠️ Things Keeping Rates Elevated

1. Inflation
   Even modestly persistent inflation means the Fed must be cautious. Inflation eats into purchasing power and forces central banks to keep rates higher for longer.

2. Mortgage-Backed Securities (MBS) Spreads
   Spreads between government bond yields and mortgage-backed securities have been wider lately, which adds cost to mortgages.

3. Housing Supply & Affordability Issues
   Even with rates easing, home prices remain elevated in many markets. For many buyers, the affordability gap is still tough. Sellers may hold off listing homes if they have a low interest rate, which reduces inventory.