Average US mortgage rates have risen for the fifth consecutive week, resulting in increased costs for homebuyers compared to just a few weeks prior to the onset of conflict with Iran. The average 30-year fixed mortgage rate increased to 6.46% this week, up from 6.38% the prior week, marking the highest level in seven months, as reported by Freddie Mac. The increase could pose challenges for prospective homebuyers this spring, which is generally regarded as the peak season for the housing market. In the final week of February, preceding the US-Israeli offensive against Iran, the average rate for a 30-year mortgage stood at 5.98%. Kara Ng indicated that the shock in mortgage rates, driven by turmoil in the bond market associated with the war in Iran, has the potential to impede the spring housing market should the conflict persist. “If the situation resolves quickly, it will be early enough in the home shopping season for catch-up activity,” Ng stated.
The prolonged duration of the conflict may lead to an increasing number of homebuyers deferring their purchases until the next season, she noted. Recent fluctuations in mortgage rates seem to be causing hesitation among buyers and homeowners. Last week, there was a 3% decline in purchase applications, accompanied by a significant 17% decrease in refinance applications, as reported. The increase in mortgage rates has significantly elevated the cost of borrowing for home purchases. For instance, on a $450,000 residence with a 20% down payment, a purchaser who secured a 30-year mortgage in February would incur approximately $1,346 less annually compared to an individual obtaining a loan this week.
The total savings accumulate to $40,000 throughout the duration of the loan. Mortgage rates typically follow the trajectory of the 10-year US Treasury yield, which moderated its increases after reaching its peak since July on Friday. Markets have exhibited volatility as investors assess the potential for elevated oil prices to rekindle inflationary pressures. This week, the ongoing conflict has driven the average price of gasoline for Americans above $4 for the first time since 2022. Accelerated inflation may prompt the Federal Reserve to maintain interest rates at their current levels for an extended period – or potentially increase rates. Market participants are currently assessing the potential duration of the energy price surge, Ng noted. Mortgage rates do not directly align with the Federal Reserve’s policy rate; however, the central bank possesses the capacity to impact the yield on the 10-year Treasury.
During a discussion with students at Harvard University on Monday, Fed Chair Jerome Powell indicated that the central bank might maintain current interest rates while officials evaluate the economic repercussions stemming from the global energy shock driven by the war. The ongoing conflict has heightened concerns regarding the possibility of renewed inflation and an impending recession, complicating the Federal Reserve’s trajectory ahead. “We will eventually face the question of what to do here,” Powell stated, addressing inquiries regarding energy prices. “We have yet to confront the situation, as the economic implications remain uncertain.”