Mortgage rates increase behind Iran, inflation worries

Mortgage rates moved higher this week, as Treasury yields moved off of last week's low as investors had concerns not just over the Iran ceasefire but also inflation.

The 30-year fixed rate mortgage averaged 6.49% as of July 9, the Freddie Mac Primary Mortgage Market Survey reported. This was up from last week when it was 6.43%. However, a year ago this product averaged 6.72%.

Meanwhile, the 15-year FRM averaged 5.82%, versus 5.79% a week ago, and 5.86% for the same period last year.

"Mortgage rates have not changed much recently, but economic growth and housing affordability continue to improve for homebuyers as they shop for homes in today's market," said Sam Khater, Freddie Mac chief economist, in a press release.

However, when bond investors shift their views on inflation or economic growth, it is more likely to cause a shift in the 10-year Treasury and mortgage rates typically follow within days, said Kyle Bass, production business manager at Refi.com, in a statement.

This is why this week's movement in the Freddie Mac PMMS "is worth understanding because many homeowners assume the Federal Reserve's decisions drive their mortgage rates," Bass said. "That is not quite how it works."

Recent Mortgage Banker Association Weekly Application Survey activity shows how quickly borrowers have been responding to yield-driven rate changes.

"The demand is significant, but it is activating in short windows rather than building into a sustained trend," Bass said. "This surge-and-retreat pattern is what a window market looks like in practice, and it has defined refinance activity throughout the spring and into the summer."

As tracked by Optimal Blue mortgage rates have been trending higher, even before this latest hiccup in the Iran conflict.

On June 26, the conforming 30-year FRM hit its recent low point of 6.41%. Since then, for the most part, the rate has been climbing and on July 8, got to 6.57%.

Lender Price data posted on the National Mortgage News website had the 30-year FRM at 6.78% as of 11 a.m. on Thursday morning, 1 basis point lower from 24 hours earlier. A week earlier, the rate was 6.62%.

The 10-year yield closed at 4.57% on July 8, up from 4.48% seven days prior and 4.42% on June 30.

While the failed ceasefire helped to drive the Treasury yields higher, "to be fair, rates were likely to rise anyway," Kate Wood, NerdWallet's lending expert, said in a Thursday morning statement. "Even without the latest fighting, inflation remains a concern, and Wednesday's minutes from the June meeting of the Federal Reserve showed at least some of the central bankers were already on board with a rate hike."

While inflation data to be released next week is expected to show a slight improvement, the renewed hostilities could render those numbers moot. "For now, it feels like the best case scenario is mortgage rates increasing slowly rather than spiking," Wood said.

While Zillow increased its rate outlook, the change was due more to secondary market considerations, although the increase in the 10-year Treasury also had an impact.

"Zillow's forecast is for rates to ease only gradually, drifting to roughly 6.3% by the end of 2026," said Kara Ng, senior economist at Zillow Home Loans, in a Wednesday night comment. "This modest upward revision to the forecast is partly driven by government-sponsored enterprise purchases of mortgage-backed securities falling short of market expectations, which dampened a source of downward pressure against lingering inflation."

If rates end the year at this point, it would be higher than last fall and winter. This means "affordability could shift from a tailwind relative to last year to more of a headwind, especially when comparing listings and sales," Ng said.