US mortgage rates climbed to their highest level last week since August, as rising oil prices linked to the Middle East war fuelled inflation fears and pushed up Treasury yields, making home loans more expensive and clouding the outlook for the spring housing market.
Key highlights
- US mortgage rates rise to 6.57%, highest since August
- Rates up 48 basis points since Iran war began
- Rising oil prices push Treasury yields higher
- Refinance applications fall sharply by 17.3%
- Housing market faces uncertainty during peak spring season
What happened
According to the Mortgage Bankers Association, the average contract rate on a 30-year fixed mortgage rose 14 basis points to 6.57% in the week ended March 27.
Mortgage rates have now climbed 48 basis points since the United States and Israel launched military action against Iran on February 28.
The increase tracks a sharp rise in yields on the 10-year US Treasury note, a key benchmark for mortgage pricing, which surged 37 basis points last month amid global energy disruptions.
Why this matters
The spike in borrowing costs comes at a critical time for the housing market, which typically sees stronger demand during the spring season.
Higher mortgage rates reduce affordability and risk slowing home sales, even as policymakers aim to improve housing access.
At the same time, expectations for interest rate cuts from the Federal Reserve have weakened, as rising oil prices increase inflation risks.
Official statements
Neil Dutta, economist at RenMac, said the timing of the increase was “inopportune” given seasonal housing demand.
Danielle Hale, chief economist at Realtor.com, said renewed uncertainty is “threatening to sideline buyers and sellers” after earlier optimism.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, said higher rates and economic uncertainty are likely weighing on buyer confidence despite improved housing supply.
Sector performance
- Refinance applications dropped 17.3% last week
- Purchase loan applications fell 2.6%
- Housing demand remains under pressure from rising borrowing costs
Other market moves
Treasury yields continued to rise as strong US economic data, including retail sales and jobs figures, reinforced expectations that the Federal Reserve will keep rates on hold.
Oil prices, though slightly lower after signs of possible de-escalation in the Iran conflict, remain significantly above pre-war levels.
Australia angle
Australia could see spillover effects as global bond yields rise, influencing local borrowing costs and mortgage rates.
Higher global energy prices are also adding to inflation pressures, complicating the policy outlook for the Reserve Bank of Australia and potentially affecting housing affordability.
What next?
Investors will closely monitor inflation data and Federal Reserve signals for direction on interest rates.
Any easing in oil prices or geopolitical tensions could help stabilise mortgage rates, while continued uncertainty may keep borrowing costs elevated.
FAQs
Q1: Why are US mortgage rates rising?
Mortgage rates are increasing due to higher Treasury yields driven by inflation fears linked to rising oil prices.
Q2: What is the current mortgage rate?
The average 30-year fixed mortgage rate is now 6.57%, the highest since August.
Q3: How does this affect homebuyers?
Higher rates make borrowing more expensive, reducing affordability and potentially slowing home purchases.
Q4: Will mortgage rates fall soon?
That depends on inflation trends and Federal Reserve policy. Continued geopolitical tensions may keep rates elevated.
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