Mortgage rates have been hovering around 6.5% for eight weeks, according to Freddie Mac data. It looked like there may be clearer roads ahead the week of July 3, when the 30-year fixed rate decreased.
But now mortgage rates have bounced back up.
The national average 30-year fixed mortgage rate has increased by six basis points to 6.49%. The 15-year fixed rate is up three basis points to 5.82%.
I previously wrote that there could be hope for mortgage rates continuing to decrease, at least for a few weeks. Tensions in the Middle East were calming, and jobs data was relatively week. Both of these factors should theoretically lead to lower rates.
So, what happened?
The Iran war isn’t over — and it’s hurting mortgage rates
One reason that mortgage rates ticked down the week of July 3 was the movement toward a peace agreement between the U.S. and Iran. However, tensions have flared back up since then.
Iran attacked commercial vessels on the Strait of Hormuz earlier in the week, and the U.S. and Iran have been attacking each other ever since. President Trump declared that the ceasefire was over on Wednesday, July 8.
Oil prices increased as a result. Brent crude oil, the global benchmark, rose by 6% to over $80 per barrel on Wednesday, per The Guardian.
Related: Zillow sees change in housing market, home values
Before the U.S. and Israel attacked Iran at the end of February, many Americans probably had no idea how the price of oil and mortgage rates were intertwined.
But oil affects the cost of a lot of consumer goods, so when oil prices increase, it contributes to inflation. And when inflation grows more aggressively, mortgage rates tend to increase alongside it.
The war and oil prices played a huge role in 10-year Treasury yield activity. The yield jumped, especially on July 8. Because mortgages are long-term loans, they tend to follow long-term benchmarks, such as the 10-year Treasury yield, more closely than the federal funds rate.
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Mortgage rates rose along with the 10-year Treasury yield
The conflict in the Middle East wasn’t the only factor driving up the 10-year Treasury yield. Another one was something that wasn’t on my Mortgage Rate Bingo card for the week: Amazon launched a $25 billion bond sale on July 7 to help fund its AI infrastructure strategy.
To make the bonds appeal to buyers, Amazon offered wider spreads that result in paying investors higher yields. This incentive is what makes it a “sale.”
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Amazon’s sale played a roll in the 10-year Treasury yield rising eight basis points on July 7, according to Fortune.
In my years of reporting on mortgage rates, I’ve learned about the many aspects that move mortgage rates. Bonds can be one of the most confusing.
Basically, this sort of bond sale from a high-profile company can increase investor demand. Yields on other securities, such as the 10-year Treasury note, rise to compete for investor attention.
Then, mortgage lenders up their rates to keep up with the market and follow the general trend of the 10-year Treasury yield.
While the war is one reason behind a higher 10-year yield, factors such as the Amazon bond sale also have their say.
Small weekly rate increases aren’t a big deal
Here’s the good news: A six-basis-point increase from the week prior really isn’t a huge difference.
Related: Zillow sees change in housing market, home values
Let’s say you take out a $400,000 mortgage loan with a 30-year term and a 6.43% rate (the rate from July 3). Your monthly payment toward the principal and interest would be $2,510.
If you took out the same mortgage with a 6.49% rate (the rate from July 9), your monthly payment would increase to $2,526.
That’s just $16 more per month.
Yes, you would pay more in interest over the life of the loan. But if you’re worried about the affordability of monthly mortgage payments, the weekly shift shouldn’t be a game-changer.
Mortgage rates in the mid-6% range are the new reality
Now for the bad news: Not only have mortgage rates been roughly 6.5% for eight weeks, but they probably won’t decrease in the near future. In fact, I wouldn’t be surprised if they increased a little bit.
The state of the Iran war is volatile, and it doesn’t look like it will calm down anytime soon.
“This is in retribution for yesterday’s bombing of ships by Iran. If it happens again, it will get much worse!” Trump posted on Truth Social, referring to attacks on Iran Wednesday night.
If the Iran war persists, mortgage rates will likely stay relatively high.
Also, economists expect the Federal Reserve to hike the federal funds rate at least once in 2026. Home loan rates typically rise before a Fed meeting when people anticipate a rate hike.
“With the market still pricing in a Fed hike by December, we’ll likely need more soft labor data and inflation moving toward 2% before bonds and mortgage rates respond more meaningfully,” Jeff DerGurahian, chief investment officer and head economist at loanDepot, said in a statement shared with TheStreet.
But with high oil prices, I have a tough time believing inflation will be moving down toward 2% this year.
Longer-term mortgage rates in the mid-6% range don’t necessarily mean you shouldn’t buy a house, though. It’s just that you should be prepared for high rates and know what you’re getting into before taking that next step.
“Think of it less like trying to time the market perfectly and more like making sure the house, the payment and your long-term plan all fit together,” DerGurahian said. “While every market is different, housing remains one of the great long-term assets you can own.”
Related: Goldman Sachs issues major prediction for US housing market
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