The 30-year fixed rate climbed this week as Iran-driven inflation fears roil bond markets
The American housing market's most critical selling season is unfolding under the weight of higher borrowing costs.
The benchmark 30-year fixed-rate mortgage surged to its highest point in nearly nine months this week, piling fresh pressure on buyers who dared to hope that the worst was behind them.
Freddie Mac's Primary Mortgage Market Survey released Thursday put the average 30-year fixed-rate mortgage at 6.51% for the week ending May 21, up 15 basis points from 6.36% a week earlier.
The jump marks the highest reading since August 28, when the rate stood at 6.56%, erasing much of the affordability progress that had quietly accumulated since February, when the benchmark briefly slipped below 6% for the first time since late 2022.
The 15-year fixed-rate mortgage, widely used by homeowners looking to refinance, rose in parallel, climbing to 5.85% from 5.71% the prior week.
A year ago, both benchmarks sat higher, 6.86% and 6.01%, respectively, offering a measure of cold comfort for borrowers navigating an increasingly uncertain market.
"As rates fluctuate, aspiring buyers should remember that by shopping around for the best mortgage rate and getting multiple quotes, they can potentially save thousands," said Sam Khater, Freddie Mac's chief economist.
Bond market turbulence drives the surge
The catalyst for this week's move is familiar: rising Treasury yields.
The 10-year Treasury note, which serves as the primary benchmark lenders use to price home loans, climbed to around 4.6% in midday trading Thursday, up from 4.47% a week earlier and a long way from the 3.97% level it occupied in late February before the war with Iran broke out.
Bond yields have spiked as investors grow increasingly worried about the inflationary consequences of the Middle East conflict.
The closure of the Strait of Hormuz has sent crude oil prices sharply higher, a development that feeds directly into consumer price expectations.
With the 10-year now approaching 4.6%, rate quotes in the high 6s are becoming increasingly likely, a prospect that dims hopes for a meaningful recovery in purchase volume through the summer.
Read more: Mortgage rates hang in the balance as the bond market’s rollercoaster week continues
The Mortgage Bankers Association's measure of the 30-year rate came in even higher, at 6.56% for the week — a seven-week high.
MBA chief economist Mike Fratantoni noted that higher rates continued to weigh on application volume, with refinance applications falling more than 40% compared to the prior month. He added that seasonally adjusted purchase application volume also declined, though by a more modest 3%.
Markets are now pricing in little chance of a Federal Reserve rate cut before year-end, and the odds of a potential hike are, by some measures, rising.
Newly released minutes from the April 28-29 Federal Open Market Committee meeting revealed that a majority of participants flagged that some degree of policy tightening would likely become appropriate if inflation continued to run persistently above the committee's 2% objective.
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