If you’ve been keeping an eye on mortgage rates lately, you might be scratching your head. The Federal Reserve has cut rates several times this year, inflation has cooled dramatically from its pandemic highs, and yet your mortgage rate is still sitting well above 6%. What gives?

You’re not alone in wondering what’s going on. The truth is, while the Federal Reserve’s actions influence parts of the economy, mortgage rates operate on a completely different rhythm—and understanding that difference can help you make smarter real estate decisions.

1. The Fed Doesn’t Control Mortgage Rates

When the Fed cuts rates, it’s adjusting the federal funds rate—the interest banks charge each other for overnight loans. That’s short-term money. It affects credit cards, car loans, and business lines of credit, but it has very little direct impact on 15- or 30-year mortgages.

Mortgages, on the other hand, are long-term loans. They don’t follow the Fed’s overnight rate. Instead, they move with something else entirely: the 10-Year U.S. Treasury yield.

Why? Because investors who buy mortgage-backed securities want a return that matches what they could get from a 10-year Treasury bond—plus a little extra for the added risk. Historically, mortgage rates tend to sit about 2% above the 10-year Treasury yield.

So, if the 10-year yield is around 4%, mortgage rates usually hover near 6%. And lately, that’s exactly what’s been happening.

2. The “Spread” Is Wider Than Normal

Even though the math sounds simple, there’s another factor keeping rates elevated: the spread between Treasury yields and mortgage rates.

Normally, that spread is about 1.5–2%. Right now, it’s closer to 3%. That extra percentage point represents the premium lenders charge to protect themselves from risk—and it’s coming straight from your wallet in the form of higher monthly payments.

Think of it like restaurant pricing. A restaurant buys ingredients wholesale and marks them up to cover rent, equipment, staff, insurance, and profit. Lenders do the same thing. They borrow money at one rate (the Treasury rate) and then mark it up to account for default risk, inflation, and uncertainty in the economy.

3. Why Lenders Are Playing It Safe

So why the big markup right now? Three main reasons:

➡️ Inflation hasn’t cooled everywhere.
The headline numbers look great, but essential costs like rent, insurance, childcare, and healthcare remain high. Lenders know that sticky inflation makes long-term investments riskier.

➡️ The Fed isn’t buying mortgage bonds anymore.
During the pandemic, the Federal Reserve was the biggest buyer of mortgage-backed securities, which kept rates artificially low. Those “training wheels” are off now, and private investors want higher returns to buy those same loans.

➡️ The world feels uncertain.
Geopolitical tensions, national debt debates, and an uneven housing market have investors demanding a “safety cushion.” And that cushion shows up as—you guessed it—higher mortgage rates.

4. When Will Rates Actually Drop?

For mortgage rates to meaningfully fall below 6%, three things need to happen:

1. Inflation must cool across the entire economy—not just in the headlines.

2. The Fed must signal long-term stability in the mortgage market.

3. Investors need confidence that the economy is steady enough for lower yields.

Until all three conditions are met, rates are likely to remain volatile and “sticky.” Most forecasts don’t expect consistent sub-6% mortgage rates until sometime in 2026.

5. What You Can Do Right Now

If you’re waiting for the return of 3% mortgage rates, don’t hold your breath. That was a once-in-a-generation event triggered by a global crisis. Instead, focus on strategies that work today:

✅ Adjust your budget. Explore nearby neighborhoods that offer better value.
✅ Negotiate creatively. Ask sellers for credits or rate buydowns.
✅ Think long-term. Plan to refinance later if rates fall half a point or more.
✅ Don’t wait for perfection. The perfect house at 6.5% often beats the wrong house at 3%.

Remember, wealth in real estate comes from time in the market, not timing the market.

If you’d like help building a personalized game plan for buying or selling in the Los Angeles area, reach out to Scott Himelstein with the Scott Himelstein Group.

With clear strategy and smart guidance, you can navigate today’s market with confidence—no matter what the headlines say.