Why Do Long-Term Rates Keep Going Higher?

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Why Do Long-Term Rates Keep Going Higher?

If you are house shopping, you’ve asked this question lately. You’ve probably got a mortgage in the 3% range, and because rates are so much higher right now, you might almost feel stuck. Even to make a move to comparable house could cost you way more on your mortgage payment just because of the difference in interest rate. That may lead you to wonder why rates are so much higher now than they were a few years ago. I’m going to try and answer that question in today’s episode:

3% mortgage rates were not normal in the first place. They were an anomaly. If you go back to 1971 when Freddie Mac started tracking rates via its Primary Mortgage Market Survey, the average rate over the last 55 years is about 7.7%. Let that sink in for a minute. If we take a decade-by-decade look, in the 70’s the rate was a smidge under 9%. In the 80’s nearly 13%. In the 90’s back down to 8%. In the early 2000’s it was 6%. So, these really low rates have only been present since the Great Recession in 2008. That’s when they started their multi-year move downward. So, if in the next few years, we settle into a range that is in the 5-7% range (which I think is very possible), we would actually be a little below the 55-year average. So, yes, mortgage rates are higher than the 3% rate you may have now, but the rate was not normal. So, in order to get back to what has been historically normal, rates have to go higher. And I’ll do a bit of editorializing here. It is good that mortgage rates are not at 3%. It sounds great for rates to be at that level, but there are side effects – potential inflation and excessive risk taking. When rates are that low, it increases demand for houses. If builders can’t keep up, it causes house prices to go up. Case in point: on November 19th, 2020, the average rate was 2.72%. You know that price of houses have gone up since then. In some cases, housing prices have doubled and even tripled. Easy money can be inflationary if supply can’t keep up. I also mentioned that rates are too low encourage excessive risk talking. Cheap money allows people to take on more and more risk by borrowing too much. I think we have yet to see the results of the credit binge that was enabled by ultra-low rates. In other words, I think the economy will have a hangover from many having too much debt. Maybe more in that in a later podcast. So…really really low interest rates are not as good as they sound.

The U.S. Government has annual budget deficits and lots of debt. I would not say that the Treasuries finances are a dumpster fire. But it is also not something that needs to be put off for another generation to figure out. Every day the market is deciding what the rate ought to be for the new debt that the U.S. Government is taking on. And lately, the market has required a higher rate because there are some concerns about the long-term fiscal health of the U.S. government. If you were loaning me money, and my finances were not the greatest, are you going to charge me a low rate or a high rate? The riskier I am, the higher the rate you are going to charge me for the risk you are taking. It is the same with the bond market. And it is the bond market that may eventually force the U.S. to take action. I think that action will eventually come in two forms – spending cuts and tax increases. No politician wants either of these – so nothing will change until the rate we are borrowing for our debt becomes too painful to ignore. One painful psychological trigger might be 5% on 10-year government bonds. Right now, the 10-year is at 4.65%.

Foreign Governments are moving their reserves from Treasuries to Precious Metals. For decade, U.S. debt has been the safest investment you could make in the entire world. It still is – but some governments are diversifying away from U.S. debt and moving into gold. According to U.S. News, China has reduced its treasury holdings from $1.3 trillion in 2014 to half that now. Other Central banks are doing the same. So far, U.S. investors, Pension Funds, Money Market Funds, and perhaps even Stablecoin issuers. But can they soak up the demand that is being lost to certain foreign central banks faster than the debt grows? Current U.S. debt is at about 125% of GDP. The only other time it was higher was right after World War II. We grew out of that one. In other words, GDP climbed dramatically faster than debt. It is possible that the AI revolution will help the GDP increase substantially. But will it grow faster than our debt, particularly when demographics are not in our favor. As a side note, one of the Social Security Trust funds will be depleted in 6 to 8 years if something is not done. The next Presidential election will probably feature different visions of how to address deficits, debt, and higher interest rates.

If you are in the market to buy a home, we have an incredible program called our Home Sweet Home Loan. It’s a program that is unique on many levels and it might offer you a lower rate than you might expect. It’s worth taking a listen. Start your financial conversation with us today by visiting foundationbank.org. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on August 25, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.