The high mortgage interest rates in the United States are primarily driven by the Federal Reserve's aggressive monetary policy to combat inflation and the elevated risk premiums reflected in Treasury yields. These factors, combined with broader economic uncertainties, have pushed borrowing costs for mortgages to multi-decade highs.

The Federal Reserve raised benchmark interest rates 11 times between March 2022 and June 2023, increasing the federal funds rate from 0.25% to 5.25%-5.5%. This tightening cycle directly impacts mortgage rates, as they are loosely tied to the 10-year Treasury yield. By late 2023, the 10-year Treasury yield reached 4.3%, up from 1.5% before the Fed's hikes. Lenders pass on this cost to borrowers through higher mortgage rates, with the 30-year fixed-rate mortgage averaging 7.08% in November 2023—over 3 percentage points higher than pre-pandemic levels.

Additionally, the risk premium—the difference between Treasury yields and mortgage rates—expanded due to investor concerns about economic slowdowns and banking sector volatility, such as the collapse of Silicon Valley Bank in March 2023. This risk premium, historically around 1.5%, surged to 2.2% in mid-2023, further inflating mortgage costs. Data from the Mortgage Bankers Association shows that loan applications fell 16% year-over-year in October 2023 as rates rose, reflecting reduced affordability. While the Fed has paused rate hikes since July 2023, persistent inflation and tighter lending standards continue to constrain mortgage affordability, with 30-year rates remaining above 7% in early 2024. These dynamics underscore the interplay between monetary policy, Treasury markets, and economic sentiment in shaping mortgage costs.