Mortgage rates were supposed to start falling by now.

Instead, they’ve been flirting with 7 percent.

Given a recent shift in the economic outlook, mortgage experts say there’s little relief in sight. With inflation still running hot and the political showdown over the debt ceiling intensifying, mortgage rates are unlikely to fall sharply this month.

“We can expect to see more of the same: Mortgage rates will continue to remain stagnant at levels above 7 percent,” says Glenn Brunker, president of Ally Home. “We will see little shift until the Federal Reserve signals a pause to further rate hikes.”

May mortgage rates: Not at all what was expected

Mortgage rates continue to confound expectations. In 2022, rates surged past 7 percent far faster than anyone predicted. Then, in 2023, mortgage rates calmed, leading many observers to predict rates would fall all the way to the low 5 percent range this year.

Now, though, rates are on the rise again. The average mortgage rate was 6.52 percent as of May 3, according to Bankrate’s weekly national survey of lenders. Rates climbed steadily through May, reaching 6.90 percent in the final survey of the month.

The wildcard rate watchers are looking at now

Borrowers will be at the mercy of two main drivers in June. One is the political standoff over the federal debt ceiling. Treasury Secretary Janet Yellen recently gave June 5 as an important date on that front​​ — while the federal government had sufficient reserves to pay June’s Social Security checks, it could run out of money that day.

The debt ceiling brinksmanship — or worse — seems likely to take what is already an abnormally wide spread and expand it further. — Greg McBride, Bankrate Chief Financial Analyst

The other question is about inflation, and what the Federal Reserve might do at its June meeting.

“Between the debt limit impasse and the next meeting of the Federal Reserve, all eyes will be on Washington,” says Lisa Sturtevant, chief economist at Bright MLS, a real estate listing service in the Mid-Atlantic region.

The debt ceiling clash has roiled markets, and that anxiety is affecting mortgage borrowers. The uncertainty is showing up in the gap between 30-year mortgage rates and their closest proxy, the 10-year Treasury yield.

This interval, known to economists as “the spread,” typically runs between 1.5 and 2 percentage points. If the 10-year yield sits at 4 percent, for example, the 30-year fixed mortgage rate should track close to 6 percent.

However, in late May, the spread had jumped to more than 3 percentage points — its highest level since 2009, according to Bankrate research.

“A big wildcard in the housing market right now is the debt ceiling debate,” says Sturtevant. “While it would be unprecedented, if an agreement is not reached and the government defaults on its debt, mortgage rates likely will spike, which could significantly reduce homebuyer demand. Even the extended negotiations are beginning to rattle markets and bring down consumer confidence.”

A quick resolution to the debt debate would calm mortgage markets — but further escalation would do the opposite.

“The debt ceiling brinksmanship — or worse — seems likely to take what is already an abnormally wide spread and expand it further,” says Greg McBride, Bankrate’s chief financial analyst.

Inflation still hanging around

Another problem area for mortgage borrowers is inflation. In late May, the Commerce Department reported that a measure of inflation closely watched by Fed officials accelerated in April, rising 4.4 percent compared to a year ago. In March, that measure, the Personal Consumption Expenditures price index, had been at 4.2 percent.

Zillow Senior Economist Orphe Divounguy calls the unexpected report “a bump on the road” for central bank policymakers.

“On one hand it points to a resilient U.S. consumer with still high purchasing power,” says Divounguy. “On the other hand, stubbornly high inflation means bond yields — and mortgage rates that tend to follow them — are likely to remain elevated.”

While the Fed doesn’t directly control mortgage rates, its moves do set the overall tone for borrowing costs. The central bank had hinted, after raising rates at 10 consecutive meetings, it would take a pause. Many observers even thought the Fed would begin cutting rates in the coming month — but the latest inflation report changes those predictions.

“Inflation is still running too high,” says Mortgage Bankers Association Chief Economist Mike Fratantoni, “and recent economic data is beginning to convince investors that the Federal Reserve will not be cutting rates anytime soon.”