What are seven reasons why mortgage rates have risen recently?

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  1. An increase in the Federal funds rate makes it more expensive for banks to lend and they may pass this on to homeowners and buyers in the form of higher mortgage rates. Recently the Federal Reserve has put its rates on hold after raising them in each of the preceding years as the economy improved and the need to increase their room for maneuver in face of a future downturn became apparent.
  2. Some mortgage lenders have left the market, mostly due to heightened competition. This leaves the field open for the remaining issuers to increase the rates they charge.
  3. Generally, when bond yields rise, mortgage rates follow. This is because bonds and mortgages compete for the same group of investors seeking secure, long-term returns on their money. Treasury yields have been quite robust for some time.
  4. Also, in general, confidence that the economy will expand in the future increases demand for new homes and refinancing of existing mortgages, making room for issuers to charge higher rates. At the start of the 2020s, overall confidence has been on the rise although tempered somewhat by fears of global trade disruptions.
  5. Rising rents make purchasing a home a more attractive alternative to living in rentals, driving mortgage rates up.
  6. Many people expect that inflation will increase cause the Fed to raise its rate. Therefore, inflationary expectations indirectly can drive mortgage prices up. Recent years's lower inflation may not have completely removed the fear of a resurgence.
  7. Actual price inflation also increases mortgage rates as issuers raise them in order to safeguard their returns in real terms. Inflation remains quite low, but mortgage issuers may be preparing for higher levels.
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