Mortgage rates keep climbing. The why is six things at once.

As many of us know, six months ago mortgage rates were the best they had been in nearly four years. The week ending February 25, the 30 year average fell to 6.01%, the lowest since September 2022, and the VA average was sitting at 5.53% (FRED, Optimal Blue daily index, February 27).

Those are averages, and averages hide the best pricing. Published rate indexes blend every locked loan: all credit tiers, all points structures, all lock lengths. Well-qualified borrowers routinely price a quarter to a half point under them. In early February, lender marketplaces were quoting VA 30 year rates as low as 5.13% for borrowers with good credit while the index average sat in the mid 5s. In the final days before the conflict, VA locks at or right around 5% were on the table for strong files. That was the floor of this cycle.

Then February 28 happened. As of August 20, the VA average is 6.35% and conventional is 6.72%. That is more than three quarters of a point of climb across the board, with both sitting at their highs for the year. The VA discount of roughly a third of a point survived; the whole ladder just moved up.

As we know, mortgage rates generally follow long term Treasury yields, not the Fed's rate. Right now six separate things are pushing those yields up at once. Short version of each:

1. The war and oil. Tanker traffic through the Strait of Hormuz has slowed to a crawl, oil is near $80 a barrel, and gas is around $4 a gallon. Energy costs feed inflation, and bond investors demand higher yields when they expect inflation to stick. Every ceasefire this year pulled rates down. Every breakdown sent them back up.

2. The Fed is not riding to the rescue. The Fed has held its rate at 3.5% to 3.75% all year, and the July vote was 9 to 3, with the dissenters wanting a hike, not a cut. This week's minutes showed officials saw a need to raise rates if inflation does not cool. That is also why credit card APRs, HELOCs, and other variable rate debt are staying put.

3. The deficit is breaking records. The July deficit hit $432 billion, the biggest monthly total since March 2021, putting the year at nearly $1.8 trillion. Interest on the almost $40 trillion national debt has cost about $1.2 trillion this year alone. More borrowing means more bonds for sale, and buyers demand higher yields to absorb it. The 30 year Treasury hit a 19 year high this week, and the 10 year, the one mortgages track, is near 4.7%. Treasury doubled its bond buyback program to try to calm the long end. The relief lasted about a day.

4. AI companies are competing for the same money. Tech companies have issued record amounts of corporate debt to fund data center buildouts, and that debt competes directly with Treasurys for investors. Some of those companies carry better credit ratings than the US government. Barclays analysts say the recent rise in rates is less about inflation and more about the deficit and AI-related issuance competing with Treasurys. Every dollar in a data center bond is a dollar not bidding on government debt.

5. Japan stopped being the quiet buyer. For decades Japanese institutions parked huge money in US Treasurys because their own bonds paid nearly nothing. That is over. Japan's 10 year yield just hit its highest level since 1996, and as domestic yields rise, Japanese investors are bringing money home, selling $29.6 billion of US debt in the first quarter alone, removing a historically reliable buyer from a market already dealing with large deficits. Their central bank may hike again as soon as September, which would pull more money home.

6. Uncertainty itself carries a price tag. This is not a partisan point, and it cuts across administrations and parties. Treasurys have always been the asset the world buys when it wants zero drama. When investors are less sure what fiscal and monetary policy will look like a year out, they charge extra for holding long term government debt. That extra charge is called the term premium, and it is rising. Analysts point to growing uncertainty around the longer term path of fiscal and monetary policy as a reason investors are demanding higher yields on long dated Treasurys. The market is also still taking the measure of a new Fed chair. Even the Treasury's own attempt to help got read skeptically, with some economists questioning whether the expanded buybacks were about short term optics rather than price stability. Whether or not those critiques are fair, the fact that the market debates them at all is the point. Doubt is expensive, and right now buyers of US debt are pricing some in.

Putting it together. The unusual part is not any one of these. It is all six pulling the same direction at once. One Barclays strategist noted that three separate reports argued for lower yields this month and long end yields rose anyway.

What could change it. A real end to the conflict takes the oil pressure off, and the June truce proved rates respond fast when that happens. Cooler inflation gives the Fed room to stop talking about hikes. The deficit, the AI borrowing, Japan, and the trust question are slower moving and probably not going anywhere soon. So even if the war stopped tomorrow and oil prices dropped, we probably won't be seeing February rates again anytime soon.

One thing that has not changed: the gap between the average and the best pricing. Strong credit, reasonable loan size, and shopping multiple lenders still buys real money below the published number, both in February and today.