Mortgage Rates Refuse to Fall Despite a Cool Inflation Report— and One Analyst Says 'The Bond Market Is Saying Something Different Than the Fed'
Mortgage rates are likely to remain elevated despite a cooler-than-expected June inflation report, according to HousingWire Lead Analyst Logan Mohtashami, who said the Federal Reserve’s continued hawkish stance and geopolitical uncertainty are keeping long-term borrowing costs high.
Speaking with HousingWire Editor in Chief Sarah Wheeler on Wednesday’s episode of the HousingWire Daily podcast, titled “Inflation Misses Estimates but Rates Still Elevated,” Mohtashami said investors had expected mortgage rates to decline after June inflation came in well below forecasts. Instead, Treasury yields initially fell sharply before recovering as Federal Reserve officials maintained a cautious tone, leaving mortgage rates largely unchanged.
His comments come as the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey showed the average contract rate on a 30-year fixed mortgage with conforming loan balances climbed to 6.65%, the highest level since August 2025, while applications to purchase a home fell 7% from the previous week, underscoring the pressure higher borrowing costs continue to place on prospective buyers.
Fed Policy Is Keeping Mortgage Rates Elevated
Mohtashami said mortgage rates have largely remained within a 6.5% to 6.75% range that HousingWire outlined earlier this year, even as oil prices and inflation data have fluctuated.
He said June’s inflation report was one of the biggest downside surprises in recent history, and under normal market conditions, Treasury yields would have fallen much further. Instead, mortgage rates remained elevated because Federal Reserve officials continued delivering hawkish messaging.
“The bond market is saying something different than the Fed,” Mohtashami said.
He said mortgage rates are likely to stay near current levels unless policymakers adopt a more dovish tone or labor market data weaken enough to pull long-term Treasury yields lower.
He also pointed to ongoing geopolitical tensions in the Middle East as another factor keeping markets cautious, saying the conflict has introduced uncertainty that continues to support higher long-term borrowing costs.
Higher Rates Continue to Weigh on Homebuyers
The Mortgage Bankers Association reported total mortgage application volume declined 2.7% on a seasonally adjusted basis last week, while purchase applications dropped 7% from the previous week and were 2% lower than the same period a year earlier.
Applications to refinance rose 4% from the prior week and were 7% higher year over year, although refinancing activity remained relatively subdued as mortgage rates were only modestly below year-ago levels.
“Despite higher mortgage rates, refinance applications increased, led by FHA and VA refinance applications rising 9 and 10 percent, respectively,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Analysts See Housing Demand Softening
The weaker home purchase demand also drew reactions from market strategists.
Renaissance Macro Research echoed the trend in a post on X, saying higher mortgage rates are having a “predictable impact” on home purchase demand after the latest Mortgage Bankers Association data showed purchase applications fell 7.3% in the week ended July 10.
The latest data add to broader concerns surrounding housing affordability. Previous industry surveys have found mortgage rates and elevated home prices remain the biggest obstacles for prospective buyers, even as housing inventory gradually improves. Homebuilders have also warned that persistent shortages of skilled construction workers continue to limit new housing supply, adding to affordability pressures across the market.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image via Shutterstock