Jewels of Wisdom Newsletter – Why Haven’t Mortgage Rates Gone Down Yet?

Posted on December 17, 2025
In Jewels of Wisdom Newsletter

Why are Mortgage Rates Still Above 6% (as of Friday, Dec 12)

Mortgage rates are actually set by investors who view risk & reward in the same way you do. To illustrate the reason why mortgages are still above 6%, allow me to do a demonstration: (assume you have $300,000 to invest)

Would you loan me $300,000 at 12% interest? Many readers actually make loans like this to Diamond Equity (my company) often. I assume this is because the 12% is an attractive return compared to competing opportunities AND our track record and strong balance sheet offers lower risk

Would you loan me $300,000 at 6% interest? Most readers would NOT make this loan. They have better opportunities to earn more than 6% OR don’t want to risk their money being tied up at 6% in case something better comes along.

Would you loan me $300,000 at 4% interest? We all agree that no one reading the Jewels of Wisdom newsletter would make a private loan at 4% to fund a fix & flip investment deal. We would rather leave it in a money market account safely earning 3% with no risk.

This is How Mortgages Work

The money to fund those 6% mortgages comes from bonds. Bond investors are people like us and institutional investors (life insurance companies/pension funds).

Why Were Rates so Low for so Long?

Until early 2022, the Fed was buying mortgage bonds. The fed was willing to “lend” into mortgages at rates as low as 2-3%. In other words, using the example above, it would be like the Fed lending the money to me at 2-3% interest.

Once they stopped buying those bonds (lending through mortgages), rates immediately jumped to the 6-7% range. This is the market driven rate of return investors expect in today’s market if they are waiting 20-30 years to have their money returned.

Don’t Count on Rates Dipping Below 5-6%

I recently wrote about The Maturity Wall, where the high interest rates have arranged a dirty bomb in commercial real estate similar to what occurred in 2008 in the residential housing on account of adjustable rate mortgages.
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6% Mortgage rates are the “normal” rates over the course of our lifetimes. During the time from 2008 (shaded area is recession) through 2022, the Fed was “buying” the mortgage bonds and receiving 3% return on their investment. Now, they are not.

We can expect rates to settle in this 5-6% range for the next few years unless we enter recession. If the overall economy falters significantly, and the Fed buys mortgage bonds again, that is when we could expect to see 4% mortgages. I don’t have high hopes in this occurring anytime soon.

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