Mortgage Rates: US Home Loan Costs Hit One-Year High As War And Inflation Fears Bite

Average US mortgage rates have climbed to their highest level in a year, as investors grow increasingly anxious that elevated oil prices stemming from the conflict with Iran will keep inflation stubbornly high.

The average 30-year fixed-rate mortgage reached 6.66 per cent this week, according to data from the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, marking its highest level in a year, up from 6.72 per cent at the end of last July.

Mortgage Rates: What Is Driving Rates Higher Right Now?

Analysts point to the intersection of energy markets and monetary policy as the central force behind the rise. Since the United States and Israel began joint strikes on Iran in February, investors have grown increasingly concerned that higher energy prices will keep inflation elevated, weighing on the outlook for interest rates more broadly. LoanDepot chief economist Jeff DerGurahian said the housing market’s fate was now closely tied to developments overseas, telling CNN Business, “Oil and inflation remain the biggest drivers, and mortgage rates will likely need energy prices to settle and inflation to remain under control before they can move meaningfully lower.”

Mortgage rates loosely track the 10-year Treasury yield, a key measure of investors’ inflation expectations, which has recently climbed to its highest level since January 2025, reflecting expectations that interest rates could remain higher for longer.

Mortgage Rates: How Has The Federal Reserve Responded?

The central bank’s own signals have added to the uncertainty gripping mortgage markets. The Federal Reserve voted this week to hold its benchmark interest rate steady, though three of its rate-setting committee members voted in favour of a hike, a rare split that markets interpreted as a signal a higher rate could be on the way in the near future. Federal Reserve Chairman Kevin Warsh suggested that market moves themselves, including the recent rise in Treasury yields, may already be doing some of the central bank’s work by pushing borrowing costs higher across the economy, according to CNN Business.

Mortgage Rates: What Impact Is This Having On The Housing Market?

The rate increase is already visible in weakening demand for home loans. Mortgage applications fell 6.4 per cent last week compared with the week before, according to data from the Mortgage Bankers Association, while refinance applications plunged by 10 per cent over the same period.

Even so, some economists say the picture for buyers is not uniformly bleak. Zillow senior economist Kara Ng noted that wage growth has outpaced home-value growth across most of the country this year, helping affordability, though she cautioned that rising prices for everyday goods and services have eaten into those gains, limiting how much buyers can comfortably spend on a home.

Beyond financing costs, the broader housing market has shown little momentum in recent years. Home sales have barely moved over the past three years, according to the National Association of Realtors, with the average existing home selling for more than $440,000 in June even as sales themselves declined 2.4 per cent from a year earlier.

With the Federal Reserve’s next policy decision still weeks away and the Iran conflict’s trajectory uncertain, economists say mortgage rates are likely to remain volatile in the near term, leaving prospective buyers watching both Washington and the Middle East for signs of relief.