BY COMFORT OGBONNA

The average rate on the most widely used U.S. home loan climbed to its highest level in nine months last week, as persistent geopolitical tensions involving Iran and elevated oil prices fueled inflation concerns and pushed U.S. Treasury yields higher.

According to data released Wednesday by the Mortgage Bankers Association, the average interest rate on a 30-year fixed mortgage increased by 9 basis points to 6.65% during the week ending May 22. The rate was last higher in August 2025, before the Federal Reserve began a series of interest-rate cuts aimed at protecting the labor market from further slowing.

The rise in mortgage rates reflects growing uncertainty over the future direction of inflation and monetary policy in the United States. Financial markets have become increasingly sensitive to developments in the Middle East, particularly tensions surrounding Iran and the Strait of Hormuz, a vital global oil shipping route. Elevated energy prices have added to fears that inflation could remain stubbornly high for longer than previously expected.

Higher oil prices have contributed to a rebound in consumer inflation, with prices in April rising 3.8% compared with a year earlier. That marks a noticeable increase from the 2.9% inflation rate recorded last August, when expectations were building for lower interest rates and easing price pressures.

At the same time, the U.S. labor market has remained relatively stable. The unemployment rate currently stands at 4.3%, unchanged from the level seen in August 2025. The resilience of the job market has reduced pressure on the Federal Reserve to aggressively cut interest rates, even as borrowing costs remain elevated across the economy.

Some Federal Reserve policymakers have recently signaled increasing concern that inflation may not be driven solely by temporary increases in energy prices. Instead, they fear broader and more persistent price pressures could emerge, potentially forcing the central bank to consider raising rates again if inflation continues accelerating.

Mortgage applications fell sharply as borrowing costs climbed higher. The Mortgage Bankers Association said total mortgage applications dropped 8.5% from the previous week, with refinancing activity accounting for most of the decline. Higher rates have discouraged many homeowners from refinancing existing loans, while also making home purchases more expensive for prospective buyers.

The latest jump in mortgage rates comes during a leadership transition at the Federal Reserve. Kevin Warsh recently took over as chair of the U.S. central bank, succeeding Jerome Powell. President Donald Trump had repeatedly criticized Powell over interest-rate policy, arguing rates were too high and were limiting economic growth.

Shortly after Warsh was sworn in during a White House ceremony, Trump expressed optimism that interest rates would eventually decline. However, financial markets currently appear less certain about the possibility of near-term rate cuts. In fact, traders are increasingly pricing in the possibility that the Federal Reserve could raise rates before the end of the year if inflation remains elevated.

Mortgage rates do not move directly in line with the Federal Reserve’s benchmark short-term interest rate, but they are heavily influenced by the yield on the 10-year U.S. Treasury note. Treasury yields generally rise when investors expect stronger inflation or tighter monetary policy, making borrowing more expensive across the economy.

Although Treasury yields have eased somewhat this week on hopes of a diplomatic breakthrough that could reopen the Strait of Hormuz and stabilize oil supplies, uncertainty surrounding the conflict continues to weigh heavily on financial markets.

Housing analysts warn that persistently high mortgage rates could further slow the U.S. housing market, which has already been struggling with affordability challenges and limited inventory. Elevated borrowing costs have reduced purchasing power for many households, making it harder for buyers to enter the market despite continued demand for homes in several regions.

Investors and homeowners alike are now closely watching upcoming inflation reports and Federal Reserve comments for clearer signals about the direction of interest rates in the months ahead.