The war in Iran is driving up the cost of buying a home in America.
The average 30-year fixed mortgage rate rose to 6.22% this week, up from 6.11% the week before. It’s the highest level since early December, reflecting the inflation fears rippling through markets.
Less than a month ago, rates had fallen below 6% for the first time in more than three years, a key psychological threshold that some experts believed could reignite home buying and selling ahead of the spring homebuying season.
But since then, the US-Israeli war on Iran, which began in late February, has sent energy prices skyrocketing.
Mortgage rates closely track the US 10-year Treasury yield, which is seen as a gauge of how investors feel about future inflation and economic growth.
The 10-year yield this week fluctuated, but on Thursday hovered around its highest level in nearly two months after briefly touching its highest level since August. The 10-year yield climbed from 3.96% before the war started to roughly 4.28% this week.
The move indicates that many investors fear higher oil prices could trigger inflation.
Higher mortgage rates may already be weighing on the spring homebuying season. According to a separate report from the Mortgage Bankers Association, mortgage applications fell 10% last week.
“Whether this upward pressure on rates – tied to Middle East tensions – will temper what should be strong spring demand remains to be seen,” MBA CEO Bob Broeksmit said.
Before the war, investors were betting that the Federal Reserve would cut interest rates again, which could lead to lower mortgage rates. But the potential for higher inflation makes it more difficult for the Fed to deliver those cuts.
On Wednesday, Fed Chair Jerome Powell said the Fed “worries a lot” about bringing inflation back down to 2%, the central bank’s goal.
“It has been five years and we had the tariff shock, the pandemic, and now we have an energy shock of some size and duration. We don’t know what that will be,” he said. “You worry that is the kind of thing that can cause trouble for inflation expectations.”
While inflation has cooled since its peak in 2022, it remains above the Fed’s target. The Personal Consumption Expenditures price index was up 2.8% in January.
