The mortgage rate shock hitting the housing market has years left to run, Capital Economics says

Mortgage rates hitting a century-high of 8% this month has left economists, homeowners, and prospective borrowers alike wondering when (or whether) the market will let up. Capital Economics doesn’t expect mortgage rates to fall significantly anytime soon—how does 6% or higher through the end of 2025 sound?

The London-based research firm, known for its housing market forecasting, released a revised mortgage rate forecast on Thursday, showing it’s unlikely that mortgage rates will fall below 6% before the end of 2025. Thomas Ryan, the new U.S. property economist for Capital Economics, tells Fortune: While the firm has “kept the same path for mortgage rates that we had in our previous forecast, we’ve shifted up our anticipated path for mortgage rates.”

That’s going to continue to have an adverse effect on housing affordability in the U.S., which is already at abysmal levels with high home prices and mortgage rates and declining inventory levels.

“Our new higher forecasts for U.S. Treasury yields mean that mortgage rates won’t fall as quickly as we previously predicted,” Ryan wrote in the new forecast. “While we still expect mortgage rates to decline, they are unlikely to fall below 6% before end-2025, muting any recovery in house purchase demand and sales volumes.”

By the end of 2023, Capital Economics predicts the mortgage rate will be 7.5% (versus 6.75% in its previous forecast), and drop to 6.25% by the end of 2024 (versus 5.25% in its previous forecast), Ryan says. It won’t be until the end of 2025 that we’ll see 6% mortgage rates, predicts Capital Economics, which had previously penciled in a 5% rate by the end of that year.

Higher mortgage rates tied to higher Treasury yields

The firm’s new forecast is tied to higher forecasts for U.S. Treasury yields, which affect mortgage rates. The 30-year fixed mortgage rate is “loosely benchmarked” to the 10-year Treasury bond, Odeta Kushi, deputy chief economist at Fortune 500 financial services company First American, wrote in a report this year, meaning that mortgage lenders tie their interest rates to bond rates. Historically, the spread between the 30-year fixed mortgage rate and the 10-year Treasury bond yield has been 1.7 percentage points (typically expressed as 170 basis points or bps).

“In simple terms, mortgage rates are priced directly from the yield on mortgage-backed securities (MBS), which is a bundle of home loans sold as an asset,” Ryan tells Fortune. “When Treasury yields rise, lenders require higher yields on their mortgage-backed securities to attract investors that want to earn a higher return than the risk-free rate, which in turn pushes mortgage rates up.”

Today, the spread is at more than 300 bps with the U.S. Treasury yields briefly touching 5% this week for the first time since 2007. This, in turn, has pushed mortgage rates to their highest point since November 2000, “and is higher than we had anticipated them to go,” Ryan wrote.

When we can really expect to see rates fall

However, Capital Economics does predict that mortgage rates will fall faster than Treasury yields, albeit slowly. In 2024, the firm predicts, the 10-year yield will drop 75 bps to 3.75%, compared with a 125 bps fall in mortgage rates, Ryan says.

The firm also predicts that the U.S. Treasury yields will “fall sharply” from here and that the Fed will abandon its “higher-for-longer rhetoric” and cut interest rates next year. Even with strong GDP growth this quarter, Capital Economics expects that growth to slow—and even decline soon.

“That weakness, together with further signs of improvement in core inflation, which has already been falling since the back end of 2022, is why we expect the Fed to cut rates more aggressively next year than current market pricing assumes,” Ryan says. “As outlined in the report, that will put downward pressure on Treasury yields and mortgage rates.”

Other real estate experts and financial institutions tend to agree that we’ll continue to see relatively high mortgage rates—at least compared with the sub-3% rates of the pandemic—throughout the next couple of years. Goldman Sachs also released its forecast this week, predicting “sustained higher mortgage rates,” not dipping below 7% until the end of next year.

Other housing market experts are doubtful we’ll ever enjoy the mortgage rates of the pandemic era again.

Mortgage rates “will never return to the 2%-to-3% range they were previously,” Rhett Wiseman, a private real estate investor who owns and has invested in more than 200 residential properties in the Northeastern and Midwestern markets, previously told Fortune. In other words, the frozen housing market, with people holding on to their sub-3% rates, could be with us for a long time to come.

This story was originally featured on Fortune.com