The global sell-off in the bond market is impacting the housing market, as US mortgage rates have surged to their highest level of the year. That is exerting new pressure on home buyers and homeowners seeking to refinance. The average 30-year fixed mortgage rate increased to 6.71% this week, as reported by Freddie Mac. That represents the peak level since July 2025. Mortgage rates are closely linked to the 10-year Treasury yield, which frequently fluctuates in accordance with investors’ anticipations regarding future inflation and economic expansion. The 10-year Treasury and the broader bond market have experienced a significant global sell-off, as investors contend with increasing worries regarding the US conflict with Iran, the implications of rising energy costs on the economy, and a national debt that has surpassed $40 trillion for the first time in history.
Bond yields increase as bond prices decrease, and on Wednesday, the 10-year Treasury yield attained its peak level since October 2023. On Thursday, there was a modest decline in bond yields. Bond yields play a crucial role in determining interest rates throughout the economy. Consequently, a significant increase in yields could lead to higher costs for mortgages, as well as for auto loans and various other forms of borrowing. Many economists had anticipated a decline in mortgage rates this year, and for a period, the trend appeared to be moving in that direction.
However, the onset of the conflict with Iran in February disrupted that trend, as a surge in oil prices heightened concerns that inflation might resurge, according to Chen Zhao. Redfin anticipates that mortgage rates will remain in the upper- and mid-6% range for the remainder of the year, Zhao added. The elevated mortgage rates have exerted pressure on the housing market, resulting in a decline in the number of homes being sold. Pending home sales declined in July, reaching their lowest point since the beginning of the year, as indicated by the most recent data from the National Association of Realtors.
The rate increase is also rendering refinancing unattainable for homeowners who had anticipated benefiting from reduced borrowing costs. Refinance applications experienced an uptick earlier this year when the 30-year mortgage rate momentarily fell below 6%, prior to the escalation of the Iran war which subsequently drove rates upward, noted Jeffrey Ruben, president of home lending at WSFS Bank. Currently, as mortgage rates approach 7%, there has been a noticeable decline in refinance activity, he noted. “[Refinance activity] even more so than home purchases is clearly impacted by interest rates,” Ruben said.
