Average US mortgage rate climbs to 6.11% as Middle East tensions unsettle bond markets

Ongoing crisis in the Middle East is beginning to ripple through financial markets, with the impact now visible in the US bond market. The average rate on a long-term mortgage in the United States moved higher this week as bond market volatility persisted. According to mortgage buyer Freddie Mac, the benchmark 30-year fixed mortgage rate rose to 6.11% this week from 6% a week earlier. A year ago, the average rate stood at 6.65%. The latest increase places the average rate roughly where it was five weeks ago. Just two weeks ago, the rate had fallen to its lowest point in three and a half years. Throughout the year it has largely hovered around the 6% mark, providing a relatively supportive backdrop for prospective buyers who can afford homes as the spring homebuying season begins. Borrowing costs also climbed for shorter-term loans. The average rate on a 15-year fixed mortgage, commonly used by homeowners refinancing their loans, increased to 5.5% from 5.43% last week. At the same time last year, the average rate was 5.8%, according to Freddie Mac. Mortgage rates are shaped by several factors, including interest-rate decisions by the Federal Reserve as well as bond investors’ expectations about the economy and inflation. In general, they tend to follow movements in the 10-year US Treasury yield, which lenders use as a key benchmark when pricing home loans. By midday Thursday, the 10-year Treasury yield was at 4.25%, compared with about 4.13% a week earlier. Treasury yields have risen recently as higher oil prices have fuelled concerns about inflation. Those worries have outweighed the impact of last month’s weaker-than-expected hiring data from US employers and a relatively steady reading on consumer inflation that was recorded before the outbreak of the Iran war. “Under normal circumstances, these soft economic readings would put downward pressure on mortgage rates, however, the news out of the Middle East is overriding those signals,” Hannah Jones, senior economist research analyst at Realtor.com said in an email. Rising oil prices can push inflation higher, which in turn may discourage the Federal Reserve from lowering interest rates. While the central bank does not directly set mortgage rates, its decisions on short-term borrowing costs are closely watched by bond investors and can influence the yield on 10-year Treasury notes that help determine mortgage rates. The US housing market continues to face a slowdown that dates back to 2022, when mortgage rates began climbing from the lows seen during the pandemic. Sales of previously owned homes in the United States have hovered near an annual pace of around 4 million since 2023, significantly below the roughly 5.2 million annual pace that has historically been typical. Transactions fell to a 30-year low last year and have remained subdued so far this year, trailing the pace recorded a year earlier in both January and February despite mortgage rates being lower than they were at that time.