Today’s rate increase is due almost entirely to inflation jitters.
The daily average mortgage rate jumped to a six-month high of 6.41% on March 13, after they had dipped below 6% for the first time since 2022 in February.
Today’s increase is almost entirely due to sentiment about inflation.
- All interest rates are up because of inflation fears.
- The 10-year treasury yield, which mortgage rates stem from, is up from 3.95% to 4.29%.
- Expectations for Fed rate cuts have moved from expecting two cuts in the second half of 2026, starting in the summer, to expecting no cuts until the end of 2026 or beginning of 2027.
- In fact, this is not likely to change the Fed’s path much. The Fed cares about core inflation, which excludes food and energy prices, because they don’t think they can affect those prices. Core inflation generally changes very little when oil prices spike. But there is some chance the Fed will need to react, if this episode goes on for an especially long time. That fear is driving long term treasury yields up.
- When rates are volatile and go up, mortgage rates increase faster than the underlying 10-year treasury yields.
Between Feb. 27 and now, the difference between 10-year treasury yields and mortgage rates–known as the spread–has increased by only 8 basis points. But if bond volatility continues to increase, that spread will increase dramatically.
General bond volatility has increased, as evidenced by the MOVE index. That has increased from 73.38 on Feb 27 to 95.30 today.
These moves are still mild compared to what we saw during Liberation Day last year. At that time, the MOVE index spiked to 139.88, 10-year treasury yields were at 4.6%, and mortgage rates exceeded 7%.
Should the Iran war end soon, it’s likely these rate moves will reverse quickly and mortgage rates will settle back closer to 6%. Our rate forecast for 2026 remains in the low 6’s, call it between 6% and 6.2%. The expectation is that this conflict will not drag on long enough to affect that longer term outlook.
Here’s Daryl Fairweather, Redfin’s chief economist, on today’s jump in mortgage rates:
