Mortgage Rates Climb to 6.58% as Iran Conflict Pushes Treasury Yields Higher

The average 30-year mortgage rate moved closer to a one-year high as rising oil prices revived inflation concerns, although home purchase applications continued to increase amid expanding inventory.

By yourNEWS Media Newsroom

Mortgage rates rose to their highest level in nearly a year as surging oil prices, renewed inflation concerns and rising Treasury yields increased borrowing costs for prospective homebuyers.

The average rate on a 30-year fixed mortgage reached 6.58% during the week ending July 23, according to Freddie Mac’s Primary Mortgage Market Survey. That was well above the 52-week average of 6.32% and moved the benchmark rate closer to its highest point of the past year.

Borrowing conditions have deteriorated significantly since shortly before the war with Iran began in late February, when the average 30-year mortgage rate fell below 6% for the first time since late 2022. The average rate on a 15-year mortgage also rose, reaching 5.96%, its highest level since the middle of June.

“The tug-of-war between inflation and the renewed conflict between the U.S. and Iran is reflected in today’s rates, as higher oil prices raise concerns that elevated energy costs could filter into future inflation readings,” Jeff DerGurahian, chief economist and chief investment officer at loanDepot, said.

Inflation had shown signs of easing last month as global energy markets stabilized, but the latest escalation in the Middle East has reversed part of that improvement. Brent crude, the international oil benchmark, rose 8% and exceeded $100 per barrel in overseas trading, while U.S. crude climbed more than 7% to above $93 per barrel on the New York Mercantile Exchange.

Gasoline prices also moved above $4 per gallon during the past week, adding pressure to household budgets and increasing costs for businesses that depend heavily on transportation and fuel. Oil markets reacted to President Donald Trump’s warning that Iran could face “major military punishment” and to reports that tankers had been attacked in the Red Sea.

The sudden increase in crude prices renewed concerns that energy costs could push inflation higher and prompted investors to sell government bonds, driving Treasury yields upward. Mortgage rates generally follow movements in longer-term U.S. government debt because lenders price home loans in relation to the bond market.

The benchmark 10-year Treasury yield climbed above 4.7% for the first time since January 2025, while the 30-year Treasury yield exceeded 5.17%. The two-year yield, which is more closely tied to expectations for Federal Reserve policy, rose above 4.36%, indicating that investors expect the central bank to continue tightening monetary policy.

“Higher oil prices will likely show up in July’s headline inflation numbers, but the real question is whether they begin to bleed into core inflation,” DerGurahian said.

Core inflation excludes the more volatile food and energy categories and is closely watched by Federal Reserve officials when assessing longer-term price pressures. It slowed to 2.6% in June and is projected to ease to 2.5% in the July Consumer Price Index report, according to the Cleveland Federal Reserve’s Inflation Nowcasting model.

Federal Reserve Chairman Kevin Warsh and other policymakers have continued to identify inflation as their primary concern, particularly while the labor market remains stable. Initial applications for unemployment benefits fell last week to their lowest level since 1969, giving the central bank more room to focus on controlling prices without immediate concern about widespread job losses.

Investors increasingly expect the Federal Reserve to raise its benchmark interest rate by one-quarter of a percentage point as early as September. Although the central bank does not directly set mortgage rates, higher policy rates and expectations of continued tightening generally place upward pressure on borrowing costs throughout the economy.

Mortgage News Daily said rates could continue rising next week. Its own measure placed the average 30-year fixed mortgage rate at 6.85% as of July 23, reflecting differences in methodology and daily market movements.

Matthew Graham, chief operating officer at Mortgage News Daily, said the current level remains difficult for buyers but does not make home purchases impossible. He also noted that rates could fall if geopolitical conditions improve and energy markets stabilize.

“It is not ideal, but also not the end of the world. And if peace finds a way to break out again, June serves as a proof of concept that rates can respond favorably,” Graham said.

Despite the increase in borrowing costs, mortgage demand showed signs of resilience. Total application volume rose by nearly 2% last week, while applications to purchase homes increased 6%, according to the Mortgage Bankers Association.

“Purchase volume increased modestly for the week. Growing home inventory in many markets is supporting more purchase activity,” said Mike Fratantoni, the association’s chief economist and senior vice president.

The increase suggests that some buyers are returning to the market as more homes become available, even though elevated interest rates continue to reduce purchasing power. A higher mortgage rate can significantly increase monthly payments, forcing buyers to lower their price range, make larger down payments or delay a purchase.

Affordability remains one of the market’s most persistent obstacles. Home prices rose 0.3% in June, matching May for the fastest monthly growth since the beginning of 2026, according to Redfin. Prices were 3% higher than a year earlier, adding to the burden created by rising mortgage rates.

Pending home sales fell more than 1% to a three-month low, while new listings increased 0.4%. The mixed figures show a market in which more properties are becoming available, but many buyers remain constrained by the combined cost of elevated prices, mortgage payments, property taxes and insurance.

The near-term direction of mortgage rates will depend heavily on developments in the Middle East, oil prices, inflation data and Federal Reserve policy. A prolonged conflict and sustained energy-price increase could keep Treasury yields and mortgage costs elevated, while a reduction in hostilities could ease inflation fears and allow rates to retreat.