(Bloomberg) -- US mortgage rates hit a fresh high for the year as the ongoing war with Iran and the Federal Reserve's decision to keep borrowing costs steady fueled inflation fears.
The average for a 30-year fixed loan increased to 6.69% from 6.66% a week earlier, Freddie Mac said in a statement Thursday. That's the highest since July 31, 2025, when the rate was 6.72%.
Mortgage rates have climbed higher for five consecutive weeks, dashing homebuying hopes for many prospective buyers who've been stuck on the sidelines facing affordability challenges. Applications for new mortgages fell in the final two weeks of July as the key home-financing rate edged higher, according to the Mortgage Bankers Association.
Mortgage rates move with the 10-year Treasury yield, which rose to the highest level in more than 18 months last week after Fed Chair Kevin Warsh gave conflicting signals about the US central bank's plans to control inflation. Longer-term bond yields reversed some of those gains on the news that the US, Iran and Oman may be close to reaching a deal to reopen the Strait of Hormuz. Still, the 10-year's yield remains higher than it was throughout most of 2025.
Even small increases in mortgage rates can translate to hundreds of more dollars in interest. Homebuyers with a $500,000 loan would pay more than $200 extra each month in principal and interest to finance a property with rates at their current levels, compared with when rates dropped below 6% for the first time since 2022 at the end of February.
Homebuying activity has been uneven, with higher-income buyers powered by their booming stock portfolios as lower-income buyers pull back. Starter-homes sales fell 5.4% in May from a year earlier, compared with 6.2% growth in luxury sales over the same period, according to a July report from Zillow Group Inc.
Americans need to earn almost $110,000 to afford the typical US home for sale, still near record highs, according to data from Redfin released Wednesday. Starter homes are more affordable for Americans, but pricey renovation costs are making them less attainable, Redfin said in a separate report.
"Starter homes come with tradeoffs, and finding the right one is a challenge," said Yingqi Xu, a senior economist at Redfin. "The first-time buyers who are in the market are already stretching their budgets to afford monthly mortgage payments, so they're hesitant to take on expensive renovations."
Even as rates stay elevated, homebuyers have more bargaining power than they did a few years ago — at least on paper. There are almost 500,000 more sellers than buyers across the nation and sellers have cut prices on one in five active listings, Redfin figures show.
"It is welcoming to see incomes rising faster than home prices, which has helped boost affordability," said Lawrence Yun, chief economist at the National Association of Realtors. "But the big short-term challenge to affordability is coming from rising mortgage rates."
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