The average interest rate on a 30-year fixed US mortgage rose last week to its highest level in more than 14 months, as higher oil prices linked to escalating Middle East tensions increased inflation concerns and pushed up US Treasury yields. The average 30-year fixed-rate mortgage increased by 6 basis points to 6.85% in the week ended September 4, according to the Mortgage Bankers Association (MBA).
Mortgage rates generally move in line with US Treasury yields. Treasury yields have increased in recent weeks amid concerns over rising federal debt, which crossed USD 40 trillion in August, as well as competition for capital from companies investing in artificial intelligence-related infrastructure.
Inflation concerns have also remained a factor, particularly as the US-Iran conflict raises the possibility of further price pressures. US inflation has remained above the Federal Reserve’s 2% target for around five and a half years.
Higher mortgage rates have already reduced refinancing activity. Refinancing applications fell 6.2% from the previous week, while total mortgage applications, including both home purchases and refinancing, declined 2.7%, the MBA said.
For prospective homebuyers, the current situation means that the cost of borrowing is likely to remain high, at least in the short term. This could affect their ability to purchase homes, as higher mortgage rates increase the monthly payments they need to make.
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There is also limited indication of an immediate reduction in borrowing costs for prospective homebuyers. The 10-year Treasury yield approached 4.8% on Tuesday, putting it close to its highest level since October 2023.
Two key inflation readings due later this week are expected to influence expectations for the Federal Reserve’s policy decision. The producer price index is due on Thursday, followed by the consumer price index on Friday. The data will be closely watched ahead of the Fed’s September 15-16 meeting and could affect expectations for mortgage rates.
Markets are currently pricing in a greater possibility of a Federal Reserve rate hike than a continued hold, although softer-than-expected inflation could change those expectations. A rate cut, which President Donald Trump has called for, is not currently indicated by market expectations.
The Federal Reserve will make its decision at the September 15-16 meeting.
