[Author: Rick Andrade – as published at CEO World Magazine]
“What more sacred, what more strongly guarded by every ‘holy feeling,’ than a man’s own home?”
— Cicero, Roman philosopher, 44 BC
2,000 years later it’s much the same feeling in America. It’s part of the American Dream. And in times like these our country must do more – go deeper to help home buyers embrace that ‘holy feeling’ again. But how?
We all hear the endless sticker shock stories online from younger home buyers trying to get into their first house, all to no avail given the high price of homes these days.
Experts argue that the reason homes are unreachable for many middle-class new buyers is largely because our federal, state and local leaders have imposed far too many building and zoning restrictions which limit housing developers’ ability to keep pace with market demand.
But the most-cited reason first-time buyers get priced out of the home market is the cost of financing their mortgages.
Most first-time buyers are looking for a 30-yr mortgage with monthly payments they can afford.
Right now, and for some time, 30-yr mortgage rates in America have fluctuated between 6%-7%, which seems high. And it may not make you feel any better to know that over the last 50 years, between 1971-2025, the average 30-yr fixed rate mortgage was 7.7% according to Freddie Mac data, and topped 16% in 1981. Can you imagine that?
Still, this starkly contrasts with many lucky homeowners sitting on mortgage rates under 3% — like mine, which is a jaw-dropping 2.8%. But the lower the mortgage rate, the tighter the “golden handcuffs” according to real estate experts. Low rates tend to trap homeowners in their homes, unwilling or unable to let go of the super low-rate paper, which in turn limits the number of homes available for sale, and drives up prices.
These below market rates at the time were only possible if you lived through a crisis like a recession or a global pandemic such as Covid in 2021, when the 30-yr fixed mortgage rate dropped to 2% and the benchmark 10-yr note was near zero. That’s when millions of home buyers and owners struck gold with rock-bottom rates.
The unaffordability conundrum we see today is a rate snap-back, which first started in January 2022 when the average 30-yr mortgage rate leaped from 3.2% to 7.08% by October 2022 and never looked back.
What’s my point?
In the blink of an eye, the skyrocketing mortgage rates left nearly every first-time home buyer in the lurch, frozen in step and priced out of the market, their dream of home ownership a distant hope.
And the feeling is widespread. Just ask any real estate agent across the country.
Colorado Real Estate Agent, Adrienne Herzog for example expresses her current state of despair:
“My clients are frustrated because the rates are stuck near 7%, and it’s pricing them out of homes they could have afforded a few years ago.”
Indiana Real Estate Agent Chuck Vander Stelt is frustrated:
“I hear from buyers all the time that these rates—over 7%—are crushing their dreams of owning a home. They’re having to scale back or look at riskier options like adjustable-rate mortgages just to get in the door.”
President Trump meanwhile is taking notice.
This past month he demanded Chairman Powell of the Federal Reserve Bank lower interest rates immediately to reduce the cost of home financing. Home ownership has plummeted in the last 5 years from 68% in 2020 to 65% in 2025 and it’s still trending down as existing home purchase contracts continue to fall year over year.
But to stem the tide, rates need to come down.
According to the National Association of Realtors (NAR) chief economist Lawrence Yun, his data shows that 5.5 million more households could afford a home if rates drop to 6%, boosting home sales this year and next.
And it’s the Existing Home Sales revenues that drive economic growth across our economy. For each home sold, the NAR calculates $60,000/unit in new economic activity, and one new job for every 2 homes sold. That’s how important lower rates are.
Yet, it’s been 4 years since rates were low enough to stimulate sales. And while elevated home values are a big roadblock, affordability is the key. Trump’s pressuring the Federal Reserve to lower the Fed Funds rate is like talking to a wall. It’s obvious we need to do something more, and the answer is right in front of us.
Stop using the 10-yr treasury note to benchmark 30-yr mortgage rates.
Did you know – ?
The reason most consumer debts are based off of the 10-yr US treasury note is because lenders (aka banks) prefer longer term interest-bearing loans to earn the interest income while enduring the duration, credit risks and servicing costs.
Lending is not risk-free. Make no mistake, lenders typically face a series of potential profit-killing risks for any given loan, such as prepayments, defaults, bankruptcies, late payments, and 10-yr note market price swings that require banks to implement sophisticated hedging programs to manage. None of which most borrowers understand or care about.
And for those reasons historically, the 10-yr treasury note fits the bill and is the de facto market benchmark. It’s a measure of what investors who buy mortgages expect to earn from a risk-free government note with inflation baked in for 10 years.
In fact, most loans for cars, boats, buildings, land, machinery, and our homes are all 5+ year longer-term loans. Hence the 10-yr treasury plus a risk-premium sets a ballpark rate for most consumer and small business debt.
Historically, pre-Covid, lenders in general sold 30-yr fixed rate mortgages by adding to the 10-yr a meager 1%-2% (aka the spread) for risk and expenses. For example, if the 10-yr rate was 3.50% you could expect mortgage rates to be between 4.5% – 5.5%. But since the pandemic, all that’s changed.
Today the spread is not 1-2% but rather as high as an eye-popping 3.0% since 2023, according to the Consumer Financial Protection Bureau (CFPB), and consumers are not happy about it!
Unfortunately, these elevated rates have stuck around since 2021 and remain high experts say due to the elevated economic and geopolitical uncertainties and market risks being absorbed by the 10-yr benchmark, whose rate fluctuates with global demand and risks, including global trade tariffs, inflation, unemployment and economic growth.
So then why –
Why continue to benchmark our 30-yr mortgage rates against the 10-yr if we can use a shorter-term treasury note and that doesn’t completely compromise bank interest earnings over time?
Home ownership is not the same as a car loan, boat loan, or commercial real estate purchase. It’s a fundamental construct of the American Dream – and we can do better.
What if we replaced the 10-yr treasury benchmark with the 5-yr? Can it be done in a market-driven price discovery market?
The short answer is yes!
American financial institutions and federal agencies could redesign the home loan mortgage market to base its benchmark off the 5-yr rate, let’s say instead of a 10-yr rate of 4.5% we use the 5-yr at 4.0%.
Reducing mortgage rates by 0.5% from 6.5% to 6% on the median-priced home ($435,000) looks small but will save borrowers more than $50,000 over the term of the loan, and more importantly opens the front door for millions more dreamers.
Meanwhile, lenders can hedge the shorter-term duration risk using 5-yr futures price hedging, a common practice today. Other risks which include prepayments, underwriting and secondary market sales can all be mitigated with a 2.0% loan spread added to the 5-yr rate (4%).
And here’s a real kick starter.
If we add to this another 0.5% of Fed interest rate cuts expected by year end, we could see a 30-yr fixed rate mortgage drop below 5.5%, and particularly more likely if mortgage rates are tied to a shorter-term treasury note, which responds more directly to interest rate cuts.
This will save homebuyers as much as $400 per month and $150,000 in interest expense savings over the life of the loan. That’s powerful stuff.
The point here is we don’t need to be locked into the status quo.
We can do more to knock down the prohibitively high cost of home financing — and tackling the old-school practice of how our home mortgages are calculated is the fastest route to get some relief.
As of 2025, it’s estimated that roughly 70%–75% of new 30-year mortgages are purchased or guaranteed by our federal agencies Fannie Mae, Freddie Mac, and Ginnie Mae.
That’s a lot of public influence. Let’s use it!
Luckily the Trump administration is on our side. With a single executive order Trump can instruct Congress and federal housing agencies to compel lenders to reconfigure mortgage rate pricing, which has not changed since the late 1970s according to Fannie Mae.
Trump can also take the lead to pressure state and local governments to reduce residential zoning and building restrictions, and incentivize home builders to increase unit supply to help keep inventories up and prices down.
Basically, if more Americans can get the word out to Congress and the administration to review and create alternatives to mortgage pricing, and get the House Committee on Financial Services to take steps to incentivize lenders to re-think long-term mortgage pricing it will instantly help millions more Americans get back to that “holy feeling” again.
Make sense?
[For more info on how 30-yr mortgages are priced this Fannie Mae article.]
Rick
About the author: Rick Andrade is an investment banker and market advisor in Los Angeles, Ca, where he helps CEOs and business owners buy, sell, and finance middle-market companies. Rick earned his BA and MBA from UCLA, along with his Series 7, 63, & 79 FINRA securities licenses. He is also a CA Real Estate Broker and blogs at www.RickAndrade.com on issues important to business owners. He can be reached at rickandrade.com.