U.S. Mortgage Rates Drop Amid Iran Peace Deal

The average long-term mortgage rate in the U.S. declined this week, mirroring a decrease in Treasury yields following the announcement of a peace agreement to end the conflict with Iran. Freddie Mac reported that the benchmark 30-year fixed mortgage rate dropped to 6.47% from 6.52% last week. A year ago, the average rate stood at 6.81%.

Borrowing costs for 15-year fixed-rate mortgages, commonly used for refinancing, also decreased to 5.81% from last week’s 5.84%. Last year, this rate was at 5.96%, according to Freddie Mac.

Mortgage rates are influenced by various factors including the Federal Reserve’s interest rate decisions and bond market expectations regarding the economy and inflation. They typically move in alignment with the 10-year Treasury yield, which guides lenders in pricing home loans.

Despite inflation remaining above the Federal Reserve’s 2% goal, the central bank decided not to alter its benchmark interest rate during their latest meeting. This meeting marked the first for Kevin Warsh as the new Fed Chair, succeeding Jerome Powell.

“A number of Fed policymakers expressed willingness to consider at least one interest rate hike this year,” said an official statement.

Mortgage rates have trended upwards since the U.S.-Iran conflict began in late February. The conflict disrupted oil flows from the Persian Gulf, drove oil prices higher, and consequently raised inflation and bond yields. An agreement reached earlier this week between the U.S. and Iran allows Iran to reopen the Strait of Hormuz and sell its oil freely, reducing oil and bond yields.

This development lowered the yield on the U.S. 10-year Treasury note to 4.44% from 4.53% last week. Before the conflict, it was 3.97% in late February. As of late February, the average 30-year mortgage rate had briefly fallen below 6% for the first time since late 2022. Two weeks ago, it reached 6.53%, its highest level since August 28.

Although average long-term mortgage rates remain below their level from a year ago, their upward trend and ongoing uncertainty have deterred potential homebuyers. Sales of previously owned homes in the U.S. declined in the first quarter compared to the previous year, continuing a housing slump that started in 2022 when mortgage rates began rising from pandemic-era lows.

Home sales were generally flat in April but surged in May, marking their fastest pace since December. Yet, the annual pace of existing home sales remains close to 4 million, below the historical norm of 5.2 million.

Even though mortgage application numbers fell in the most recent Mortgage Bankers Association survey, they increased by 10.8% the previous week. Additionally, pending home sales rose last month, offering a positive sign for the housing market as it enters the latter half of the year after a slow spring buying season.