If you’ve been waiting for mortgage rates to drop before buying a home, you’re not alone. Many buyers were hopeful that after rising steadily in 2023, rates would start to ease in 2024 and into 2025. As of February 6, mortgage rates remain around 6.78%—leaving many wondering, what’s keeping them up?

The truth is, mortgage rates don’t always move the way people expect. Even though the Federal Reserve has been cutting rates every few months since September, other market forces have kept mortgage rates from falling. To understand why, it’s important to look at 4 factors:

1. The Federal Reserve Doesn’t Directly Control Mortgage Rates

A common misconception is that when the Federal Reserve cuts interest rates, mortgage rates will automatically follow. But mortgage rates are more influenced by long-term economic trends than short-term Fed policy.

While the Fed’s rate cuts may eventually help lower borrowing costs, mortgage rates won’t drop significantly until investors see more stability in inflation and demand for MBS improves (NPR).

2. Treasury Yields Are Keeping Rates High

Mortgage rates are closely tied to the 10-year Treasury yield, which acts as a benchmark for long-term lending. When Treasury yields rise, mortgage rates tend to follow.

Right now, Treasury yields are remaining high due to continued inflation concerns and uncertainty about when and how much the Federal Reserve will cut interest rates. Investors demand higher yields when they expect inflation to persist, which in turn keeps mortgage rates elevated (NPR).

3. Mortgage-Backed Securities (MBS) Demand Is Weak

Most mortgages don’t stay with the lender that originates them. Instead, they are bundled into mortgage-backed securities (MBS) and sold to investors. When demand for MBS is high, mortgage rates tend to be lower. But when demand is low, rates stay high because lenders need to make these securities more attractive.

Right now, investors may be hesitant to buy MBS due to concerns over prepayment risk—the possibility that homeowners will refinance if rates drop, cutting into investors’ expected returns. This reduced demand is keeping mortgage rates from falling as quickly as some had hoped (CBS News).

4. Inflation Is Still a Concern

Even though inflation has cooled from its peak, it hasn’t dropped enough to reassure investors that it won’t flare up again. Higher inflation reduces the purchasing power of future interest payments, so lenders and investors demand higher returns to compensate for the risk.

If inflation remains stubborn, mortgage rates will likely stay elevated because lenders will continue pricing in the risk. However, if inflation continues its downward trend, investor confidence could improve.

What Does This Mean for Buyers?

For buyers, this means waiting for lower rates could be a gamble—especially if home prices continue to rise. Instead of trying to time the market, consider focusing on what you can control:

The bottom line? Rates are unpredictable, but home prices and inventory constraints are real factors that could make waiting more expensive. If you’re ready to buy, it may make sense to explore your options now rather than risk paying more later.

Connect with your Movement Mortgage loan officers to learn more.