Mortgage rates hit highest level since the start of the Iran war

By Samantha Delouya, CNN

(CNN) — Geopolitical tensions are rippling through America’s housing market, adding to the financial strain on homebuyers.

This week, the average rate on a 30-year fixed mortgage climbed to 6.55% — its highest level in nearly a year — after renewed strikes in Iran after renewed strikes in Iran rattled financial markets.

The increase all but extinguishes the optimism that defined the start of the spring homebuying season, when many economists expected falling mortgage rates to help thaw the housing market.

In February, the average mortgage rate briefly fell below 6% for the first time in three and a half years. But fighting that erupted in the Middle East days later upended that trajectory, pushing bond yields and mortgage rates higher as investors worried the conflict would keep oil prices and inflation elevated.

And there are signs elevated mortgage rates are keeping would-be buyers out of the market.

Pending home sales in June fell by 5.4% month-over-month and by 0.3% since last year, according to a report from the National Association of Realtors released on Thursday.

“The highest mortgage rates in nearly a year and the record-high national median home price together are contributing to a tepid housing market that is especially difficult for first-time homebuyers,” said NAR Chief Economist Dr. Lawrence Yun.

Mortgage applications also fell 7% last week and were 2% lower than last year, according to data from the Mortgage Bankers Association.

Mortgage rates tend to track the 10-year Treasury yield, which was volatile late last week and early this week as the US renewed strikes on Iran last week after a brief ceasefire.

The brief stop in fighting last month led to a drop in energy prices – and, in turn, cooling inflation at the wholesale level.

On an annual basis, the Producer Price Index slowed to 5.5% in June, compared to 6% in May. But renewed fighting has sent oil prices rising once again.

“Mortgage rates are caught between cooler inflation data and renewed energy risks,” Kara Ng, a Zillow senior economist, said. “Softer June inflation reduced the likelihood of a near-term Federal Reserve rate increase, but higher oil prices are keeping pressure on the inflation outlook and borrowing costs.”

Despite recent economic disruptions, Zillow still expects mortgage rates to drift lower, albeit not by much, to 6.4% by the end of 2026. That would still be higher than where rates ended last year, though.

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