Mortgage rates are having a tough time. In just over a month, they rose by a percentage point to around 7.5%, a three-year high. Buyers are backing off in response, and September home sales appear poised for a sharp slowdown.
How did this happen? Blame it on rising bond yields around the world. Mortgage rates are particularly sensitive to movements in the 10-year Treasury yield (^TNX), which has reached multi-year highs in recent weeks.
Learn more: How to get the lowest mortgage rates now
Analyzing what is causing bond yields to rise so quickly is more complicated. Economists point to a range of factors that are causing investors to rewrite their expectations for inflation and economic growth.
“There’s definitely a trend,” said Daryl Fairweather, chief economist at Redfin. “There’s something significant happening when we move toward a higher, more sustainable economy.”
While it’s impossible to predict where bond yields and mortgage rates will move, 8% loans now seem a not-so-distant possibility. Here’s why experts told Yahoo Finance that the current environment appears to be one where rates could remain high, or even continue to rise.
Oil prices and Iran
Mortgage rates soared in the weeks following the U.S. attack on Iran on Feb. 28, as investors worried about rising oil prices and their implications for inflation. Although oil prices have fallen from their peaks, concerns remain about how rising energy prices will flow through supply chains, potentially worsening inflation.
Besides oil prices themselves, general uncertainty over the situation in Iran is also pushing rates higher as investors want more compensation for unknown risks, said Jake Krimmel, senior economist at Realtor.com.
“Geopolitical uncertainty is a big part of it,” Krimmel said. “We’re talking about a supply shock. It’s not just oil, but probably everything else, trade.”
Meanwhile, Treasury Secretary Scott Bessent, who attempted to reduce bond yields through buybacks to little effect, blamed much of the rise in bond yields and mortgage rates on energy prices.
“I don’t know if this conflict is going to end next week, next month or in two months, but I believe that on the other hand, energy prices will be much lower and interest rates and mortgage rates will go down,” he said Monday.
Learn more: How Surging Treasury Yields Could Affect Your Finances
Economic growth
Yet few economists believe energy prices alone explain today’s higher rates, because the U.S. economy is showing the kind of growth that typically leads to higher bond yields and mortgage rates.
Gn bussni
