Freddie Mac has reported that the average 30-year fixed US mortgage rate rose to 6.58% from 6.55% in the latest week, its highest level in nearly 12 months. The comparable rate was 6.74% one year earlier, but the latest increase adds to borrowing costs for prospective buyers while higher oil prices are already placing pressure on household budgets.
The benchmark rate has risen for three consecutive weeks. Higher mortgage rates can add hundreds of dollars to borrowers’ monthly costs, reducing purchasing power and leading some prospective buyers to delay a purchase. The average 15-year fixed mortgage rate, often sought by borrowers refinancing a home loan, also increased to 5.96% from 5.93%. It stood at 5.87% a year earlier.
Mortgage rates are influenced by the Federal Reserve’s interest-rate decisions and by bond investors’ expectations for the economy and inflation. They generally follow the direction of the 10-year Treasury yield, which lenders use as a guide when pricing home loans. That yield was 4.7% at midday Thursday, up from 4.57% a week earlier and 3.97% in late February.
Rates have mostly moved higher this year as the conflict in Iran has driven crude oil prices higher and increased expectations of hotter inflation. Long-term bond yields have risen from their levels before the conflict began in late February. Rising oil prices could worsen inflation after it had begun to slow by more than economists expected, which could push the Federal Reserve to raise interest rates. The central bank does not set mortgage rates directly, but its short-term rate decisions can affect 10-year Treasury yields.
The latest 30-year average matches the 6.58% recorded on Aug. 21. The rate had slipped slightly below 6% in late February for the first time since late 2022, before reversing direction as oil prices and long-term yields rose.
The increase is weighing on a housing market that remains well below its historical sales pace. Seasonally adjusted sales of previously occupied US homes rose 0.7% from January to June compared with the same period last year, but remained close to an annual pace of 4 million rather than the historical norm of about 5.2 million. The national housing slump began in 2022 as mortgage rates climbed from pandemic-era lows, and sales were essentially flat last year at a 30-year low.
Bright MLS chief economist Lisa Sturtevant said elevated rates point to a slower summer housing market. She characterised affordability as a broader financial problem involving record home prices in many US markets, higher fuel costs and concerns that inflation may rise.
The operational consequence is continued pressure on household financing capacity and home sales through the summer, with mortgage affordability remaining sensitive to oil prices, inflation expectations, Treasury yields and any change in Federal Reserve policy.
