Mortgage rates increased again this week, reaching a level not seen in 23 years. Economic growth continues to defy expectations, with all of the latest economic data pointing to a resilient US consumer. Data revisions from the Bureau of Economic Analysis also show the stock of household savings is still well above the pre-pandemic level.

Economic activity is on the rise and the latest inflation numbers show upside inflation risk remains. As a result, the yield on the 10-year Treasury increased this week to a 16-year high and traders’ expectations are rising for the Federal Reserve to resume rate hikes.

Longer term Treasury yields – which mortgage rates tend to follow — depend on expected economic growth and inflation expectations. Inflation expectations are moving higher. Political dysfunction in the nation’s capital and rising government borrowing are also likely contributing to the increased pressure on yields. 

However, the rapid tightening of financial conditions is expected to lower labor demand and wage growth. A surprise downshift in economic activity and an end to the recent leadership challenges in congress would pull yields and mortgage rates lower. A weakening global economy and lasting conflict abroad would have the same effect.