The Federal Reserve decided to keep interest rates unchanged, leaving mortgage rates above 7% and homebuyers facing higher monthly costs.
WASHINGTON —
The war in Iran has driven up the cost of buying a home in America, according to experts, as the Federal Reserve held interest rates steady on Wednesday.
Just two days before the war began, the average 30-year mortgage rate fell to 5.98%. By Oct. 22, it had climbed to 7.32%, according to Freddie Mac.
“The Fed really hasn’t been the main character for mortgage rates this year. The Iran war has been a much more significant influence,” said Kate Wood, a lending expert at NerdWallet.
Wood said the connection is indirect. The war has pushed up energy costs and raised concerns that inflation could remain elevated.
“A lot of what we’re seeing is actually investor concerns about inflation being translated through the bond market,” Wood said.
Those concerns matter because mortgage rates are closely tied to longer-term Treasury yields, which are influenced by inflation expectations and other economic forces. When those yields rise, mortgage rates often follow.
The increased rates and the effects of the Iran war conflict with a major campaign promise from President Donald Trump.
“I will end the devastating inflation crisis immediately, bring down interest rates, and lower the cost of energy,” Trump said during his nomination acceptance speech at the 2024 Republican National Convention.
What higher mortgage rates mean for homebuyers
The difference can add hundreds of dollars to the cost of financing a home.
Hearst Television’s Get the Facts Data Team built an interactive calculator showing how mortgage interest charges have changed.
On a $400,000 mortgage loan, the interest charged in the first month would be approximately $2,440 at a 7.32% rate.
At the 5.98% rate recorded just before the Iran war, that same first month’s interest would have been approximately $1,993.
The calculator measures the initial interest charge on a new loan, not the total monthly mortgage payment. That payment also includes principal, while property taxes and insurance can add to the overall cost.
What is the White House doing?
The Trump administration has announced several measures aimed at reducing housing costs, although much of the relief has yet to take effect.
On Oct. 22, Trump signed an executive order seeking to reduce certain refinancing expenses, create a conditional pilot program that would automatically cancel mortgage insurance for qualifying borrowers on future loans, and lower interest rates on certain USDA and VA direct home loans.
The order also established a task force to examine ways to expand manufactured and factory-built housing.
Wood said manufactured housing could offer one of the more meaningful opportunities to improve affordability because those homes can be built relatively quickly and at lower cost.
But she cautioned that much of the executive order involves developing programs and recommendations rather than delivering immediate savings.
She also questioned how much lower refinancing costs would help homeowners in the current market.
“Virtually no homeowners are in the money on a rate and term refinance,” Wood said.
And while the administration’s measures could reduce some housing expenses, they do not directly lower interest rates on most conventional mortgages.
Federal Reserve Chairman Kevin Warsh has also acknowledged that geopolitical tensions are affecting longer-term borrowing costs. In September, he identified global conflicts as one of several factors pushing up bond yields.
According to The Associated Press, Wall Street investors are anticipating another rate hike in December. But the Fed has not committed to that move.
Wood cautioned that even if the Fed raises its benchmark interest rate, mortgage rates won’t necessarily move by the same amount. They respond to a broader range of economic forces.
For prospective buyers considering waiting for rates to fall, she offered some advice.
“If you are thinking, ‘Oh, I’m going to sit around, I’m going to wait for mortgage rates to go down.’ You can do that, but you do not know how long that wait is going to be,” Wood said. “The right time to buy a home is always when it is the right time for you and your finances, not necessarily when you think it is the right market.”
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