This week, the average long-term mortgage rate in the U.S. inched upward, nearing its highest point of the year, which underscores the persistently high borrowing costs for home loans compared to pre-conflict levels with Iran.
Freddie Mac reported on Thursday that the standard 30-year fixed mortgage rate increased to 6.52%, up from 6.48% the previous week. Although this marks a rise, it remains below last year’s figure of 6.84%.
Similarly, the 15-year fixed-rate mortgage, a popular choice for those refinancing, saw an increase, moving to 5.84% from last week’s 5.79%. Last year, this rate stood at 5.97%, according to Freddie Mac.
Rising mortgage rates can significantly impact borrowers, potentially adding hundreds of dollars to monthly expenses and diminishing their buying capability.
Mortgage rates are shaped by various influences, including the Federal Reserve’s interest rate decisions and investors’ economic and inflation expectations. They typically mirror the movements of the 10-year Treasury yield, which serves as a benchmark for lenders setting home loan prices.
Since the onset of the U.S.-Iran tensions in late February, which disrupted crude oil supplies from the Persian Gulf, mortgage rates have generally been on an upward trajectory. This disruption has contributed to a surge in oil prices, thereby fueling inflation.
Expectations of higher oil prices as the war drags on have kept long-term bond yields elevated, causing mortgage rates to mostly trend higher.
The yield on the U.S. 10-year Treasury note was at 4.53% in midday trading Thursday on the bond market, up from 4.47% a week ago. It was just 3.97% in late February, before the war broke out.
As recently as late February, the average rate on a 30-year mortgage had slipped just under 6% for the first time since late 2022. It’s hasn’t fallen below that threshold since. Two weeks ago, it climbed to 6.53%, its highest level since August 28.
While average long-term mortgage rates remain lower than they were at this time last year, their mostly upward trajectory and uncertainty over how much higher they may go has kept many would-be homebuyers on the sideline.
Sales of previously occupied U.S. homes declined in the first three months of the year compared to a year earlier, extending a nationwide housing slump that dates back to 2022 when mortgage rates began to climb from pandemic-era lows. Sales were essentially flat in April, but accelerated in May to their fastest pace since December.
Still, sales of existing U.S. homes continue to hovering close to a 4-million annual pace, far short of the historic norm that is closer to 5.2-million.
The latest mortgage applications data suggest home shoppers who can afford to buy at current rates are not holding out for them to move lower.
After declining in recent weeks, mortgage applications, which include loans to buy a home or refinance an existing mortgage, jumped 10.8% last week from the previous week, according to the Mortgage Bankers Association. Applications for both home purchase and refinancing loans rebounded.
The increase in mortgage applications is an encouraging sign for the housing market heading into the second half of the year after a lackluster spring homebuying season.
“However, if inflation continues to outpace wage growth, eroding purchasing power alongside still-elevated mortgage rates, household budgets will come under increasing pressure, posing a meaningful drag on housing demand heading into the summer,” said Jiayi Xu, an economist at Realtor.com.
