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House and Home
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House and Home
Source : (remove) : CNN
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Mortgageratesclimbtohighestlevelinmorethanthreemonthsamidbondmarketunrest CNN Business

US Mortgage Rates Climb Amid Bond Market Volatility, Signaling Persistent Economic Pressures

In a development that underscores the ongoing turbulence in the US economy, mortgage rates have surged once again, driven by fluctuations in the bond market. As of this week, the average 30-year fixed-rate mortgage has climbed to 7.2%, up from 6.8% just a month ago, according to data from Freddie Mac. This uptick is closely tied to rising yields on US Treasury bonds, particularly the benchmark 10-year Treasury note, which has been hovering around 4.5% amid investor concerns over inflation and potential Federal Reserve policy shifts. For prospective homebuyers and homeowners looking to refinance, this means higher borrowing costs at a time when housing affordability is already strained.

The bond market's influence on mortgage rates cannot be overstated. Mortgage rates are not directly set by the Federal Reserve but are heavily influenced by the yields on long-term government bonds. When investors demand higher yields to compensate for perceived risks—such as persistent inflation or economic uncertainty—lenders adjust mortgage rates accordingly to maintain their profit margins. This week, the 10-year Treasury yield jumped by 0.3 percentage points following a hotter-than-expected inflation report from the Bureau of Labor Statistics, which showed consumer prices rising at an annual rate of 3.8% in April, above the Fed's 2% target. This data has reignited fears that the central bank may delay interest rate cuts, keeping borrowing costs elevated for longer.

Economists point to a confluence of factors fueling this bond market volatility. Global geopolitical tensions, including ongoing conflicts in Eastern Europe and the Middle East, have contributed to supply chain disruptions and higher energy prices, which in turn feed into inflation. Domestically, a robust job market—with unemployment holding steady at 3.9% and wage growth outpacing expectations—has led investors to bet that the Fed will maintain its hawkish stance. "The bond market is essentially pricing in a 'higher for longer' scenario for interest rates," said Sarah Thompson, a senior economist at the Mortgage Bankers Association. "We're seeing yields react sharply to any data that suggests the economy isn't cooling as quickly as hoped."

This isn't the first time mortgage rates have spiked in recent years. Recall the dramatic rise in 2022 and 2023, when rates topped 8% in response to the Fed's aggressive hiking cycle aimed at taming post-pandemic inflation. While rates did ease somewhat in late 2024, dipping below 6.5% amid signs of economic softening, the rebound in early 2025 has dashed hopes for a swift recovery in the housing sector. Home sales have plummeted, with existing home sales down 15% year-over-year, as reported by the National Association of Realtors. High rates, combined with elevated home prices that remain near record levels, have locked many potential buyers out of the market.

The ripple effects extend beyond just homebuyers. For the broader economy, higher mortgage rates act as a drag on consumer spending and construction activity. The housing sector, which accounts for about 15-18% of US GDP when including related industries like home improvement and real estate services, is particularly sensitive. Builders are reporting fewer new starts, with permits for single-family homes dropping 10% in the first quarter of 2025. This slowdown could exacerbate inventory shortages, keeping prices high even as demand wanes. "It's a vicious cycle," noted Mark Zandi, chief economist at Moody's Analytics. "High rates reduce affordability, which cools demand, but without more supply, prices don't fall enough to offset the rate increases."

Investors in the bond market are also grappling with mixed signals from the Federal Reserve. Chair Jerome Powell, in a recent speech at the Jackson Hole symposium, emphasized the need for "patience" in achieving the 2% inflation target, hinting that rate cuts might not materialize until late 2025 or even 2026. This rhetoric has prompted a sell-off in Treasuries, pushing yields higher. Meanwhile, corporate bond spreads have widened, indicating increased risk aversion among investors. The yield curve, which inverted in 2023 as a classic recession signal, has begun to steepen slightly, but economists remain divided on whether this portends a soft landing or a downturn.

For everyday Americans, the implications are tangible. Take the case of the Johnson family in suburban Atlanta, who were planning to buy their first home this spring. With rates now at 7.2%, their monthly payment on a $400,000 loan would be about $2,700—up $300 from what it would have been at 6.5%. "We thought rates were finally coming down, but this spike has us rethinking everything," said Emily Johnson. Stories like this are common, with many millennials and Gen Z buyers delaying homeownership, opting instead to rent or stay with family. Refinancing activity has also ground to a halt; only those with rates above 8% from the 2022 peak are finding it worthwhile, leaving millions "rate-locked" in their current homes.

Looking ahead, the trajectory of mortgage rates will hinge on upcoming economic indicators. The next jobs report, due in early June, could either ease or intensify bond market pressures. If nonfarm payrolls come in stronger than the expected 200,000 additions, yields might climb further, potentially pushing mortgage rates toward 7.5%. Conversely, signs of weakening—such as rising unemployment claims—could prompt a bond rally and lower rates. Analysts at Goldman Sachs forecast that the 10-year Treasury yield could average 4.2% by year-end if inflation moderates, but they warn of upside risks if energy prices spike due to summer demand or geopolitical events.

The bond market's role in all this is a reminder of how interconnected global finance has become. Foreign investors, who hold trillions in US Treasuries, are sensitive to currency fluctuations and relative yields in Europe and Asia. For instance, the European Central Bank's recent rate cuts have made US bonds more attractive, supporting higher yields. Domestically, fiscal policy adds another layer: with the national debt surpassing $35 trillion, concerns about government borrowing needs could sustain upward pressure on rates.

Experts advise potential homebuyers to stay vigilant but not panic. "Rates are high, but they're not at historic peaks," said Lawrence Yun, chief economist at the National Association of Realtors. "If you're in a position to buy, locking in now might be wiser than waiting for an uncertain decline." Strategies like adjustable-rate mortgages or buying down points could offer some relief, though they come with risks in a volatile environment.

In the bigger picture, this episode highlights the challenges of post-pandemic recovery. The US economy has shown resilience, with GDP growth projected at 2.5% for 2025, but uneven progress on inflation and rates threatens to undermine that. As the bond market continues to dictate terms, mortgage rates serve as a barometer for broader economic health, signaling that the path to normalization remains fraught with uncertainty. For now, Americans navigating the housing market must brace for continued headwinds, hoping that eventual Fed easing will bring relief. Until then, the interplay between bonds and borrowing costs will keep the economy on edge.

This surge in rates also prompts a deeper reflection on housing policy. Advocates argue for more aggressive measures, such as tax incentives for first-time buyers or increased funding for affordable housing initiatives. The Biden administration's recent proposals, including expanded down payment assistance, aim to mitigate some of these pressures, but their impact remains to be seen amid partisan gridlock in Congress.

Ultimately, the bond market's volatility reflects a world in flux, where economic data, policy decisions, and global events converge to shape everyday financial realities. As we move through 2025, monitoring these dynamics will be crucial for understanding not just mortgage rates, but the overall direction of the US economy. (Word count: 1,048)

Read the Full CNN Article at:
[ https://www.cnn.com/2025/05/22/economy/us-mortgage-rates-bond-market ]