The average fixed rate on a 30-year mortgage rose for the fifth consecutive week, inching closer to 7 percent.

For the week ending Oct. 31, the average 30-year fixed-rate mortgage rose 18 basis points to 6.72 percent, the highest since the beginning of August, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).

This is still down more than 1 percent from the same time a year ago.

Likewise, the 15-year fixed-rate mortgage advanced 28 basis points to a near-three-month high of 5.99 percent, though it is also down 1 percent from last year.

Mortgage market volatility is still ahead, says Sam Khater, the chief economist at Freddie Mac.

“With several potential inflection points happening over the next week, including the jobs report, the 2024 presidential election, and the Federal Reserve interest rate decision, we can expect mortgage rates to remain volatile,” Khater said.

“Although uncertainty will remain, it does appear mortgage rates are cresting, and we do not expect them to reach the highs that we saw earlier this year.”

Similar upward trends were seen in alternative weekly mortgage gauges.

The Mortgage Bankers Association 30-year mortgage rate increased to 6.73 percent for the week ending Oct. 25. Mortgage News Daily’s 30-year fixed mortgage rate topped 7 percent for the first time since early July.

The latest mortgage rate metrics might be unsurprising as U.S. Treasury yields have climbed over the last several weeks.

Government bonds possess a sizable influence over mortgage rates because lenders link their rates—plus a premium—to yields.

The benchmark 10-year Treasury yield firmed above 4.29 percent during the Oct. 31 trading session, rising nearly 70 basis points since the Federal Reserve started cutting interest rates and indicated that further loosening of monetary policy was ahead.

Before the highly anticipated September Federal Open Market Committee policy meeting, industry observers expected the central bank’s unwinding of its strict monetary policy stance to ease mortgage rates and reduce borrowing costs elsewhere.

To date, government bond yields have headed in the opposite direction, which is weighing on housing market activity.

Mortgage applications have tumbled for five straight weeks.

“After a brief burst of activity in September when rates were almost 60 basis points lower, overall applications have declined 27 percent, driven by a pullback in refinances,” said Joel Kan, the deputy chief economist at the Mortgage Bankers Association.

However, pending home sales and listings are holding steady despite the upward trend in mortgage rates, says Chen Zhao, Redfin’s economic research lead.

“While it’s not unusual for mortgage rates to rise heading into an election as investors’ expectations change, mortgage rates surging to 7 percent after the Fed’s interest-rate cut is surprising, as is the fact that pending sales have remained resilient,” Zhao said in a report.

Market observers have presented various insights into why the bond yields have suddenly rocketed.

Sudden Rise in Treasury Yields

The U.S. fiscal outlook is beginning to play a sizable role in long-term interest rates, said Torsten Slok, the chief economist at Apollo Wealth Management, in an email to The Epoch Times.

The 20- and 30-year bond yields have rallied over the last five weeks, reaching 4.58 and 4.45 percent, respectively.

“US long rates are disconnecting from Fed expectations and oil prices,” he said in a note.

“Despite the market still expecting five Fed cuts over the coming 12 months, long rates are moving higher. And despite oil prices falling, long rates are moving higher. This suggests that long rates are rising because of emerging worries about fiscal sustainability.”

The United States government is on the cusp of another debt ceiling standoff when the current agreement expires on Jan. 2, 2025. This will force the next Congress to confront the debt ceiling.

Investors might be repricing and resetting their Fed policy expectations, Adam Turnquist, the chief technical strategist at LPL Financial, told The Epoch Times in an email.

“Investors priced in lofty rate cut expectations ahead of the highly anticipated September Federal Open Market Committee (FOMC) meeting. And even though the Federal Reserve (Fed) delivered a 0.50 percent interest rate reduction, investors sold the news, sending Treasury yields notably higher,” Turnquist said in a note.

“The repricing of market expectations for rate cuts closer to Fed forecasts has been part of the story behind the rebound in yields.”

The futures market had expected a more aggressive Federal Reserve. However, a mix of Summary of Economic Projections and recent commentary from the monetary authorities indicate that the central bank will take a more cautious and conservative approach.

Others say that a combination of the above, from solid economic data to election uncertainty, could also be driving the latest developments.

Traders may think the market can bear higher yields, prompting them to slap a term premium—additional compensation needed for purchasing long-term debt securities—on the bonds.

“The term premium, which is unobservable and hence must be approximated, considers a variety of factors, including Treasury supply/demand dynamics, foreign central bank expectations, and the possibility of future inflationary pressures,” said Lawrence Gillum, chief fixed income strategist at LPL Financial, in an email to The Epoch Times.

“Additionally, rising term premiums could also indicate markets are betting on higher government deficits depending on election odds.”

The Fed is expected to follow through on a quarter-point interest rate cut at next week’s two-day policy meeting.