Mortgage Rates Just Jumped 0.50% in Days. Here’s What Actually Drives Them

The Move That Caught Everyone Off Guard

Mortgage rates just increased by roughly 0.50% in a matter of days.

A little more than a week ago, the market was celebrating sub-6% rates. Now we’re back in the mid-6s.

That kind of volatility feels random…unless you understand the underlying mechanism.

The Biggest Misconception: “Rates Follow the Fed”

They don’t.

The Federal Reserve controls short-term rates (Fed Funds Rate).
Mortgage rates are driven by the bond market, particularly:

• Mortgage-backed securities (MBS)
• The 10-year Treasury

Right now, the 10-year Treasury is the one to trust because of the volatility in oil prices due to our war with Iran. MBS are important too but less so in these times because they don’t cover the depth and breadth of what is happening and because some of the technicals that MBS traders follow are outpaced by what is happening in the geopolitical space. Don’t misunderstand me, MBS technicals can play the spoiler at any time (and have) but the 10-year governs much of what is happening with mortgage rates right now.

This is why when people in my business call for the Fed to lower rates, I want to scream into my laptop, “It doesn’t matter!” Any manipulation attempted by our will only be met by extreme skepticism by the folks that actually make the markets. Here’s an excerpted exchange from a really smart industry professional, Brian Hale:

I am curious why anyone thinks it is the Feds role or charter to give 2 cents of concern about the mortgage industry? Most of the industries (sic) issues are self created. Secondly, if Warsh is able to (1 of 12 votes) move the committtee to lower short term rates and if the bond buyers see it as a political move vs a sound and thoughtful move, mortgage rates will move up and the mortgage industry will struggle.

The price of oil and the consumers concern about thier own financial position has more to do with a lack of buyers than anything else. Inflation will move up, GDP will slow and welcome back to stagflation.

How our industry reacts and manages thier own business will determine the health of our industry.

Brian correctly calls consumer concern and the price of oil the more critical factors as the drivers for a lack of buyer enthusiasm but it’s a little circular. Rates spiked (due to oil prices increasing) and that impacts buyer enthusiam also.

Look, it took me $25 more to fill my tank this week. $25. Math that out…$25 times 52 weeks…$1300, if oil prices stick where they are for the foreseeable future. Even if they don’t, it’s still $25 more than I spent the previous week and I’m not the only one. Everything runs on oil. You may feel it at the pump this week but next week it’ll be the grocery store and at the end of the month, your energy bill. And as long as prices at the pump stay high, you keep feeling it there all while prices for everything else keep going up. Fun, huh?

What Actually Moves Mortgage Rates

The bond market reacts to forward-looking risk and inflation signals, including:

• Inflation expectations
• Employment data
• Economic growth
• Oil prices and geopolitical instability

Right now, oil and global tensions are increasing inflation expectations.

That triggers a chain reaction:

1. Investors sell bonds
2. Bond prices fall
3. Yields rise
4. Mortgage rates increase

Why Rates Feel Unpredictable

Rates do not move in straight lines.

They behave cyclically:

• Sharp increases
• Short-term pullbacks
• Repeated volatility

This creates false signals for buyers waiting for “the bottom.” It is impossible to “time” the market.

I have a couple of clients that caught the absolute bottom of the market in 2021. They think they are brilliant. They got lucky. Simple. They just happened to be at the right place and time with a completed loan application, all of their documents submitted, credit pulled and were able to lock in an interest rate. Had they not been in position to lock that sweet low rate, it would have passed them by because it was only available to them for one day. Sometimes that “bottom” lasts only a few hours. And here’s the thing, no one knows when it’s coming. Ever.

Strategy Shift: From Timing to Positioning

Trying to perfectly time rates is ineffective.

A more reliable approach:

• Get pre-approved early
• Understand your affordability range
• Be prepared to act during rate dips

Final Take

The market just gave a clear signal:

If you’re waiting for the Fed to “save” mortgage rates, you’re watching the wrong driver.

You are better off deciding whether or not the payment works for you for the house you’re looking to purchase or the new payment for your refinance will give you some payment relief.

At the end of the day, you are making a housing payment anyway whether it’s a mortgage or your rent payment.

The real opportunity belongs to those who are prepared before the next move in mortgage rates…not reacting after it.