The average 30-year fixed-rate mortgage climbed to 6.66% this week, the Federal Home Loan Mortgage Corp. (Freddie Mac) reports — the highest level in a year. At the end of last July, the average was 6.72%. For many potential buyers, the 6.66% figure is a fresh reminder that homeownership is becoming less affordable.
Rates had been drifting down after last summer and even dipped below 6% in February, raising hopes that more buyers would enter a sluggish housing market and that some homeowners might be willing to trade lower pandemic-era loans for new mortgages. Instead, rates have reversed course.
A major driver has been the war with Iran and the temporary closure of the Strait of Hormuz, which pushed oil prices higher. Higher oil raises shipping and production costs, contributing to broader inflationary pressure and lifting yields on the 10-year Treasury note — a benchmark that often foreshadows movements in mortgage rates.
“Oil prices always swing mortgage rates,” said Kara Ng, senior economist at Zillow. “You get a real-time read every time you go to a gas pump about what it means to buy a home.” AAA reported the national average for a gallon of regular gasoline at about $4.10 on Thursday, roughly $1.11 higher than before the conflict began.
Investors are also unsettled by uncertainty about how long the fighting will last. “The best bet would be a decisive, conclusive, actually-sticks end to fighting in Iran,” said Kate Wood, a housing expert at NerdWallet. Even then, she warned, markets may remain cautious: “Once bitten, twice shy.”
Monetary policy concerns added to the pressure. The Federal Reserve held its benchmark rate steady recently but signaled that a hike could come in September; three members of the rate-setting committee voted for an immediate increase. That uncommon split reinforced market expectations that borrowing costs could rise further.
All of this comes against a backdrop of high home prices and weak sales. The National Association of Realtors reports that sales have barely budged over the past three years. In June, the average existing home sold for more than $440,000, while sales were down 2.4% from a year earlier — a sign that higher rates and sticker prices are keeping many buyers and sellers on the sidelines.