Rising borrowing costs are squeezing spring buyers and could stall home sales if energy driven market shocks persist. Expect tighter affordability and tougher decisions ahead.
U.S. mortgage rates rose again for the fifth straight week, making home buying more expensive than a few weeks ago, ahead of the war with Iran.
The average rate for a 30-year fixed-rate mortgage rose to 6.46% this week, up from 6.38% last week, reaching its highest level in seven months, according to Freddie Mac.
The rise could be unexpectedly painful for those planning to buy a home this spring, typically the busiest time in the housing market. In late February, the average rate for a 30-year mortgage was 5.98%.
Kara Ng, senior economist at Zillow Home Loans, said that the shock from mortgage rates, fueled by bond-market turmoil tied to the war in Iran, could curb the spring housing market if the conflict drags on.
If the situation resolves quickly, it will be at the start of the home-buying season to catch up with the demand backlog.
– Kara Ng
Market Trends and Demand
The latest rate volatility seems to be making buyers and homeowners think twice. According to the Mortgage Bankers Association, purchase applications fell 3% last week, while refinancing applications dropped 17%.
Higher rates have made borrowing for housing significantly more expensive. For example, for a $450,000 home with a 20% down payment, a borrower who took out a 30-year mortgage in February would pay about $1,346 less per year than someone taking out a loan now. Those savings over the life of the loan would total about $40,000.
Mortgage rates generally follow the yield on 10-year U.S. Treasuries, which rose after reaching its highest level since July on Friday.
Markets remain volatile as investors assess whether higher oil prices can spur renewed inflation. This week the war pushed the average price of gasoline above $4 per gallon – the first time since 2022.
Faster inflation, in turn, could prompt the Fed to keep interest rates high for longer or even raise them.
Traders are now trying to gauge how long the energy spike will last, said Kara Ng.
Mortgage rates do not directly follow Fed policy, but the central bank can influence the yield on 10-year Treasuries.
On Monday, speaking to Harvard University students, Fed Chair Jerome Powell hinted that the regulator might keep rates unchanged while officials assess the economic implications of the energy shock of global scale caused by the war. The conflict has raised concerns about both new inflation and a potential recession, complicating the Fed’s path forward.
We will soon determine what to do next about energy prices, Powell said in response to questions about energy prices. We have not yet faced this because we do not know what the economic consequences will.
– Jerome Powell
In short, the rise in rates reflects the market’s sensitivity to geopolitical tensions and swings in the energy market, which could affect buyers’ decisions and loan origination pace in the coming months.
Indeed, the situation remains unpredictable: movements in oil prices and the escalation of the conflict could once again reshape the financial landscape for mortgage lending in the United States.