That spread exists for two reasons. First, a mortgage carries default risk that a U.S. Treasury bond simply does not. Second, there are real servicing and administrative costs baked into every mortgage. AI could potentially affect both the Treasury yield side of the equation and the factors that create the spread. Here are a few potential ways those scenarios might play out.

If the biggest economic impact of AI turns out to be massive productivity gains spread across most sectors of the economy, the effect could be deflationary. We saw something similar play out in the 1990s with the internet. Many economists give Federal Reserve Chairman Paul Volcker full credit for reducing inflation in the early 1980s, but a compelling case can be made that the maturation of the internet was a significant deflationary force in its own right.

It is also worth noting that slower job growth, one of the more visible side effects of AI adoption, would likely further dampen consumer spending and add another layer of downward pressure on prices. Disinflation (where prices rise, but slowly) or outright deflation (where prices decline) makes owning long duration bonds more attractive, which pushes yields lower. History also tells us that the Fed tends to cut short term rates when disinflation becomes a concern, pulling yields lower across the entire curve. The end result of this scenario would likely be meaningfully lower mortgage rates.

Alternatively, the AI revolution could ignite a massive domestic economic expansion. In that environment, investment money might flow out of the relative safety of U.S. Treasuries and into higher returning opportunities in the market. That rotation could push bond prices down and yields up. If the economic boom also generates demand-driven inflation, it would only accelerate the selling pressure on bonds. In this scenario, mortgage rates could move higher.

This scenario gets less attention but may be the most interesting. Even if Treasury yields stay right where they are, AI could narrow the spread between the 10-year yield and the 30-year fixed mortgage rate.

It is possible that AI will improve risk assessment while simultaneously reducing the servicing and administrative costs embedded in the mortgage process. If one assumes that 30% to 50% of that 180 basis point spread is administrative in nature, cutting those costs in half with AI would not be a trivial result. Borrowers could see meaningfully lower rates even in a flat rate environment, simply because the cost of originating and managing a mortgage comes down.

No one can say with certainty which of these scenarios will dominate, and it is entirely possible that elements of all three play out simultaneously. However, many analysts seem to believe the weight of evidence points toward lower rates.

For market participants looking to manage this uncertainty, Mortgage Rate futures offer a way to hedge mortgage servicing rights and pipeline risk that can be associated with a changing rate environment. The contract is based on the Optimal Blue Mortgage Market Index, which tracks real-time rate lock data from over one-third of U.S. residential mortgage originations.

The combination of AI-driven productivity gains, the deflationary pressure of a slower labor market and the prospect of leaner mortgage operations creates a compelling case that mortgage rates are more likely to fall than rise over the coming years. For prospective homebuyers who have been sitting on the sidelines waiting for relief, that may finally be the light at the end of a very long tunnel.​​​​​​​​​​​​​​​​