Mortgage rates are on a rough ride. In just over a month, they’re up a full percentage point to around 7.5%, a three-year high. Buyers are pulling back in response, and September home sales look poised for a steep downturn.
How did this happen? Blame surging bond yields worldwide. Mortgage rates are particularly sensitive to the movements of the 10-year Treasury yield (^TNX), which has jumped to multiyear highs in recent weeks.
Read more: How to get the lowest mortgage rates right now
Unpacking what’s moving bond yields higher so quickly is more complicated. Economists point to a web of factors causing investors to rewrite their expectations for inflation and economic growth.
“There’s clearly a trend,” said Daryl Fairweather, chief economist at Redfin. “There’s something meaningful happening with us moving into a higher-for-longer economy.”
While it’s impossible to predict where bond yields and mortgage rates go from here, 8% loans now look like a not-so-distant possibility. Here’s why experts told Yahoo Finance the current environment looks like one where rates could stay high, and even keep rising.
Oil prices and Iran
Mortgage rates jolted higher in the weeks after the US attacked Iran on Feb. 28 as investors fretted about rising oil prices and their implications for inflation. Although oil prices have fallen from their peaks, concern remains about how higher energy prices will reverberate across supply chains, potentially worsening inflation.
Apart from oil prices themselves, general uncertainty about 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.
“The geopolitical uncertainty is a huge part of it,” Krimmel said. “We’re talking about supply shock. That doesn’t just touch oil, but probably everything else with trade.”
Meanwhile, Treasury Secretary Scott Bessent, who has tried to lower bond yields via buybacks to little effect, has blamed much of the rise in bond yields and mortgage rates on energy prices.
“I don’t know if this conflict’s going to end next week, next month, in two months, but I believe on the other side of this, energy prices will be much lower and interest rates, mortgage rates will come back down,” he said on Monday.
Read more: How soaring Treasury yields could hit your finances
Economic growth
Still, few economists think energy prices alone explain today’s higher rates, because the US economy has been showing the kind of growth that typically causes bond yields and mortgage rates to rise.
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Paradoxically, good economic news can be bad for mortgage rates, and right now, the economy is holding up well. Robust consumer spending helped push gross domestic product up 2.2% annually in the second quarter, and recent measures of manufacturing activity and consumer spending continue to show healthy growth.
“Consumers are still spending, and they’re spending more in real terms, which tends to point to a strong economy,” said Orphe Divounguy, founder and chief economist of Quantitative Research Group, a housing and economics consulting firm.
With a strong economy pushing inflation well above the Fed’s 2% target, “you have investors requiring additional compensation for holding long-term bonds,” pushing yields and mortgage rates higher, he added.
The AI boom
Though it may seem far removed, the massive artificial intelligence build-out is also influencing mortgage rates in multiple ways. Huge investments in data centers have contributed to the country’s recent economic growth, and the race to fund those investments may be putting further stress on government bond yields as investors favor AI debt over Treasurys.
Meta data centers operate, Saturday, Sept. 5, 2026, near Social Circle, Ga. (AP Photo/Mike Stewart) · AP Photo/Mike Stewart
Technology companies have been issuing hundreds of billions of dollars of debt to fund their AI infrastructure spending. To bond investors, these deals can look appealing: They offer higher yields than government bonds and are frequently issued by companies with credit ratings nearly as good as — or in the case of Microsoft, even better — than the US government’s.
Bond yields and prices have an inverse relationship, so as investors allocate money toward AI debt and away from alternatives like Treasurys and mortgage-backed securities, yields and mortgage rates can rise.
“The AI spending boom does have, perhaps, a crowding out effect of other kinds of investment instruments that are similar,” said Zillow senior economist Kara Ng.
Government debt and spending
Regardless of the AI trade, US government debt is viewed as a global safe-haven. The depth and liquidity of the Treasury market and the strength and stability of the US financial system draw strong international investor demand that helps lower yields.
Lately, though, the whole system has been looking a little less safe.
The US national debt has ballooned since the pandemic and crossed a record $40 trillion earlier this year. Some of the added spending came from emergency COVID-era measures that have been wound down, but the US’s spending on major categories like social programs and defense routinely exceeds its revenues.
And as yields rise, a larger share of the government’s money must go toward interest payments on its growing debt pile. That confluence of factors can scare investors away from Treasurys, sending yields and mortgage rates higher still.
The Fed’s hiking cycle
The Fed doesn’t directly control mortgage rates, but its adjustments to the short-term federal funds rate do influence their direction. Mortgage rates typically rise in anticipation of Fed actions, meaning expectations for a new rate-hiking cycle are already baked into existing rates.
Central bank officials have emphasized that further rate increases are likely warranted to bring inflation down from its current level of 3.4%. Traders see an 86% chance of at least one 25 basis point hike by year-end, according to CME FedWatch.
By some measures, mortgage rates have eased slightly from recent highs. Their average of 7.48% on Friday was a two-week low, according to Mortgage News Daily. But plenty of risks — like higher inflation expectations — that could take mortgage rates to 8% remain, said Quantitative Research Group’s Divounguy.
“It’s no longer this far-off thing,” Divounguy said. “It’s becoming closer and closer to reality.”
Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.
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