(Bloomberg) -- US mortgage rates rose to a 12-month high as Treasury yields climbed in recent weeks and continued fighting in Iran fueled concern about higher inflation.
The average for a 30-year, fixed loan increased to 6.66% from 6.58% a week earlier, Freddie Mac said in a statement Thursday. The rate was the highest since July 31, 2025, when it was 6.72%.
The property market has been held back in recent months by elevated borrowing costs, which had fallen below 6% in late February before the Middle East conflict boosted energy prices. The war contributed to a disappointing spring sales season, and the market has continued to soften. Pending sales fell to their lowest level since early April during the four weeks ended July 26, according to data from brokerage Redfin.
Peace talks to end the war in Iran had shown promise in early July and have now broken down, said Realtor.com Senior Economist Anthony Smith. "Markets are again reacting to the uncertainty, along with the inflationary pressure that comes as the conflict lifts oil prices," he added.
On Wednesday, the Federal Reserve held its benchmark rate steady, while three officials voted for a hike. Pressure is building on Chairman Kevin Warsh to take steps to tame inflation, with the yield on the 30-year Treasury bond reaching a 19-year high after the decision. The yield on the 10-year Treasury is hovering around its highest level in a year.
With the Fed signaling that its next move is more likely an increase than a cut, near-term rate relief looks unlikely for the mortgage market, Smith said.
"Homebuyers are watching this all play out as the housing market slows seasonally," Bright MLS Chief Economist Lisa Sturtevant said after the Fed meeting.
While most indicators suggest a subdued level of transactions, purchases may get an unexpected lift toward the end of summer if buyers decide to start locking in deals fearing even higher mortgage rates, she said.
America's economic divide is increasingly evident in the housing market, according to a report from Zillow. Sales of luxury homes, less sensitive to rates because many buyers pay cash, jumped 6.2% in May from a year earlier while they dropped 5.4% for starter homes.
The divergence was sharpest in San Francisco, where stock windfalls from artificial intelligence companies are driving demand. Sales of high-end homes surged 21.6%, while starter-home transactions slipped 1.2% as more sellers cut prices.
"Starter home buyers today have more options, more negotiating power, and sellers who are more willing to deal," said Kara Ng, senior economist at Zillow. "The challenge is that the same financial pressures making it harder to save for a down payment are also making it harder to take advantage of that opportunity."
(Adds information from Zillow report in final three paragraphs.)
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