Rates are "supposed to be" about 1.5% lower than they are today, about 5.5%.

1. It's actually fairly simple: "Volatility" has created a lot of fear and uncertainty in the market, and so the treasury bill is higher than normal, and so are mortgage rates. Mortgage rates generally follow treasury bill rates. Volatility means the financial market has had massive day to day changes, inflation is still high, our country is creating a massive amount of new jobs, unemployment is still impressively low. The Federal Reserve still needs to keep the Fed Funds Rate (FFR) higher to slow down our economy. The FFR being higher means it is more expensive for banks to borrow money and lend to us as consumers, so auto loans, credit cards, and HELOCs are more expensive. 

Eventually, inflation will die down, our jobs market will stabilize and slow down, and the Fed will need to lower the FFR. This means the market will be less "volatile" and then the treasury bill will go down, and mortgage rates will follow!

In other words, because our economy is filled with uncertainty, investments are riskier, and so investors need a higher rate of return in order to invest. Investors buy mortgage bonds, and so we need to charge higher rates to consumers so that investors get higher rates of return on their investments. 

2. Pre-payment risk is the other contributor. I am watching my past clients' mortgages closely to make sure I reach out to them as soon as they would benefit from a refinance. The investors know this as well. Investors buy mortgages up front, and they pay a one-time fee in exchange for the right to collect mortgage interest for 30 years, or however long the term of the mortgage is. However, if clients pay off their mortgage within 6-12 months, the investors don't have much of a chance to collect interest. So, we need to charge even higher rates to attract investors to purchase our mortgages. 

As soon as mortgage rates start heading down, then prepayment risk will go down as well. It becomes less likely clients will ever refinance if they have a rate of 5.5% or less. because that is already a historically low mortgage rate. 

Questions on this? Text me any time! 414-488-0438