Are 6% mortgage rates the new norm? - by John Rynne
In my October article there was much emphasis on what effect interest rates have on overall capitalization rates. A lengthy discussion was made regarding the battle of words between President Trump and Federal Reserve chairman Jerome Powell. The disagreement was over the level of interest rates. Since September, 2024 the Federal Reserve has reduced the Federal Funds Rate (FFR) six times for a total of 175 basis points. The last reduction was in early December 2025. The current FFR is 3.5-3.75%. The Federal Reserve Board held the line on FFR in January 2026.
One of the reasons not to reduce interest rates is there is no longer an inverted yield curve which is a sign of recession. When long-term interest rates are less than short-term rates this is a strong indication that a recession is on the horizon. Another indicator that an interest rate reduction is not needed is GDP growth. The third quarter GDP annualized growth was 4.4%. This was higher than most projections. If continued this may warrant higher interest rates. However, a majority of experts have projected GDP to be on the low side of the range of 2-3%. That with the below average job reports and unemployment inching up may warrant further interest rate cuts. The “One Big Beautiful Bill” highlights tax cuts to Middle America and the ability to depreciate 100% capital expenditures. This will have a positive effect on employment and GDP.
Interest rates for mortgages currently have been hovering around 6%. After observing mortgage rates for six decades, 6% appears to be the sweet spot. In the early-mid 1970s mortgage rates were 9%+/- . In the late 1970s and early 1980s, mortgage rates climbed to record highs of 14-18.5%+. By the end of the 1980s they were at a 9-10% with slow decreases through the 1990s in the 7-8%+ range. After the 9/11 crisis in 2001 rates declined below 6% and stayed relatively stable until the 2008 banking crisis when they went down precipitously until 2021 when rates were in the 3%+/-. They increased over 300 basis points during 2022. Over the last 50 years mortgage interest rates range were at an extreme low of 3%+/- to and extreme high of 18%+. According to Freddie Mac which began tracking in 1971 the low was 2.65% in 2021 and 18.63% in 1981 based upon 30 year fixed-rate mortgages for single family residential. The average was 7.7% and the median 7.31%. It has been my observation that commercial mortgage rates paralleled these rates albeit at a lower amortization and term. The most recent rates were 6%+. This represents an increase from the low point in the fourth quarter of 2025. This makes sense because the 10 year treasuries in November was 4%. The average 10 year treasury yield over the past 50 years was 5.82%. As of February 4th, 2026 the rate was 4.29%.
We’re at a place where a 6%+ commercial mortgage rate may be the sweet spot for the economy. Right now that’s about 200 basis points above the 10-year treasuries. To go any lower may be harmful to the market due to creating overvaluation for commercial properties. This is important since mortgage interest rates have a large impact on overall capitalization rates. The peak in the 10-year treasuries in the third quarter of 2025 was 4.5% while the high point in the fourth quarter was 4.16% for 10 year treasuries. The low point in the third quarter was 4.04% versus the low point in the fourth quarter at 4% for 10 year treasuries. Thus, overall capitalization rates trended downward in the fourth quarter with a slight upward trend so far in the first quarter of 2026. Our fourth quarter general market range of overall capitalization rates is 5.5%-12.75%.
So it appears that mortgage interest rates may have hit a natural level. That is not to say that overall capitalization rates will not continue to decline. There will be periods in which the mortgage interest rates will decline beneath the sweet spot of 6% and increase over the sweet spot. What will ultimately reduce overall capitalization further is a thriving economy when goods and services are in substantial demand . In that scenario, the level of interest rates become secondary and GDP becomes the major factor. Please visit our website at rynnemurphy.com for the entire fourth quarter real estate rate survey.
John Rynne, MAI, SRA-president and owner of Rynne, Murphy & Associates, Inc., Rochester, N.Y.