If you’ve been waiting for mortgage rates to come down, you’re probably wondering the same thing I hear from buyers almost every day:
“Why are rates still this high?”
The short answer is that there isn’t one single factor controlling mortgage rates right now.
Inflation is still a concern. The bond market remains volatile. Energy prices have been under pressure from the conflict involving Iran and the Middle East. And investors are trying to determine what the Federal Reserve will do next.
All of that matters for mortgage rates.
Where Mortgage Rates Are Today
Mortgage rates have moved higher over the past couple of months. According to Freddie Mac, the average 30-year fixed mortgage was 6.71% as of September 3, up from 6.43% at the beginning of July.
That doesn’t mean every borrower is getting 6.71%. Actual mortgage pricing depends on factors such as credit score, down payment, loan type, occupancy, loan size and points paid.
But it gives us a good benchmark for what’s happening in the broader market.
So why haven’t rates fallen further?
A big part of the answer is inflation.
Inflation Is Still Driving the Rate Conversation
Inflation and mortgage rates are closely connected.
When inflation is elevated, investors generally demand higher yields on bonds because inflation reduces the future purchasing power of the money they’ll receive. Mortgage-backed securities compete for many of those same investment dollars, so higher bond yields generally translate into higher mortgage rates.
That’s why inflation reports can move mortgage rates so quickly.
The most recent Consumer Price Index report showed headline CPI running at 3.4% year over year in July, while core CPI—which removes the more volatile food and energy categories—was 2.5%.
The next CPI report is scheduled for September 11, and I expect the mortgage market to be watching it closely.
A cooler-than-expected inflation report could help bring Treasury yields and mortgage rates down.
A hotter-than-expected report could do exactly the opposite.
What Exactly Is CPI?
CPI stands for the Consumer Price Index.
It measures how prices are changing across a broad group of goods and services that consumers regularly purchase—including housing, transportation, food, medical care and other everyday expenses.
For the mortgage market, CPI is essentially one of the country’s major inflation report cards.
When CPI shows inflation cooling, the bond market generally likes it.
When inflation comes in hotter than expected, bonds can sell off, yields rise, and mortgage rates can move higher—sometimes very quickly.
That is why you may see mortgage rates change even when the Federal Reserve hasn’t changed its benchmark interest rate.
The Federal Reserve Doesn’t Directly Set Mortgage Rates
This is one of the biggest misconceptions I hear.
The Federal Reserve does not directly set mortgage rates.
The Fed controls the federal funds rate, which influences short-term borrowing costs throughout the economy.
Mortgage rates, however, are much more closely tied to the bond market and particularly movements in longer-term Treasury yields and mortgage-backed securities.
The market is constantly looking ahead and trying to anticipate inflation, economic growth and future Federal Reserve policy.
That means mortgage rates can actually move before the Fed makes a decision.
Iran, Oil Prices and Why Geopolitical Events Matter to Your Mortgage Rate
This is where things have become particularly interesting.
The ongoing conflict involving Iran and the broader Middle East has created another source of uncertainty for financial markets.
One of the biggest concerns is energy.
Oil prices have risen as markets assess the risk of disruptions to energy production and transportation in the Middle East. Higher energy prices don’t just mean more expensive gasoline.
Energy is involved in almost everything.
It costs more to transport products.
It costs more to manufacture products.
Airlines, trucking companies, farmers and manufacturers all face higher costs.
Those costs can eventually make their way into the prices consumers pay.
In other words:
Higher oil prices can create additional inflationary pressure.
And right now, additional inflation is exactly what the bond market doesn’t want to see.
The Iran conflict isn’t solely responsible for today’s mortgage rates. Inflation, economic data, government borrowing and Federal Reserve expectations are all playing significant roles.
But geopolitical uncertainty and higher energy prices have added another layer of volatility and have made it more difficult for rates to move sustainably lower.
Why Rates Can Change So Quickly Right Now
This is also why we’ve seen periods where mortgage pricing can improve one day and give back those gains shortly afterward.
Markets are digesting several competing forces at once:
- Inflation data
- Employment reports
- Federal Reserve expectations
- Treasury yields
- Oil and energy prices
- Government borrowing and deficits
- Geopolitical developments in the Middle East
When one of those variables changes unexpectedly, the bond market reacts—and mortgage rates can follow.
So, Should You Wait for Mortgage Rates to Fall Before Buying?
This is where I think buyers need to be careful.
Trying to perfectly time interest rates is extremely difficult.
A lower rate would obviously improve affordability. But mortgage rates aren’t the only variable that matters when buying a home.
Home prices, available inventory, seller concessions and competition from other buyers matter too.
In a market with less buyer competition, there may be opportunities to negotiate a lower purchase price, closing-cost assistance or a temporary or permanent interest-rate buydown.
If rates eventually decline, refinancing may also become an option.
But you can’t go back later and renegotiate the price you paid for the house.
That’s why I generally recommend looking at the entire financial picture rather than making a buying decision based solely on today’s mortgage rate.
What I’m Watching Next
The next major piece of the puzzle is inflation.
The August CPI report is scheduled to be released on Friday, September 11.
I’ll be watching the report closely because the direction of inflation could have a meaningful impact on the bond market, Federal Reserve expectations and mortgage rates going forward.
If inflation continues moving in the right direction and energy prices stabilize, we could eventually see some pressure come off mortgage rates.
If inflation reaccelerates—or geopolitical events push energy prices materially higher—the path toward lower mortgage rates could take longer.
Either way, expect some volatility.
The Bottom Line
Today’s mortgage market isn’t being driven by one headline.
Inflation remains one of the biggest factors. CPI gives us an important look at where inflation is headed. The Federal Reserve is evaluating the same economic picture. And the conflict involving Iran has added uncertainty through higher energy prices and increased volatility in global financial markets.
For homebuyers, that makes having a strategy more important than trying to predict the exact day rates will hit their lowest point.
If you’re considering buying, refinancing or investing in real estate, I can run the numbers based on today’s market and show you what different rate, price and buydown scenarios actually look like.
Serving homebuyers, homeowners and real estate investors throughout Northern Arizona and the Greater Phoenix area.