Mortgage rates hit highest level in 20 months
The average interest rate on a 30-year fixed mortgage topped 7%, data showed.
Mortgage rates have climbed to their highest level in 20 months as rising fuel prices and heightened inflation risks weigh on financial markets.
The average interest rate on a 30-year fixed mortgage stands at 7.03%, marking a rise of more than a percentage point since the outbreak of the Iran war in late February, Freddie Mac data on Thursday showed. Mortgage rates last registered above 7% in January 2025.
Each percentage-point rise in a mortgage rate can impose thousands or tens of thousands of dollars in additional borrowing costs each year, depending on the price of the house.
The rise in mortgage rates coincided with an uptick in oil prices and Treasury yields, which closely track mortgage rates.
A key Treasury rate hit its highest level in nearly two decades on Wednesday, just days after the Federal Reserve hiked benchmark borrowing costs.
The Iran war set off a historic oil shock that has pushed up energy prices and trickled into other costs, such as groceries. The risk of a prolonged bout of inflation threatens to eat away at the value of long-term bond payments, which provide a fixed amount annually over 10 years or longer.
Bonds, in turn, have become less attractive for investors, causing yields to rise as buyers seek higher annual payouts to offset the increased risk. Financial markets are also anticipating the Federal Reserve will likely raise interest rates again next month, putting additional upward pressure on bond yields.
In recent months, a double-whammy of increased prices and high mortgage rates has put homes out of reach for many buyers, some analysts previously told ABC News. Heightened economic uncertainty amid the Iran war has also paralyzed some buyers disenchanted by elevated consumer prices and a murky path forward for borrowing costs, they said.
Elevated mortgage rates have also contributed to a phenomenon known as the "lock-in" effect, when rates remain well above those enjoyed by most current homeowner who in turn may be reluctant to put their homes on the market and risk a much higher rate on their next mortgage.
Consumer prices overall rose at an annual rate of 3.4% in August, the most recent month on record, federal government data showed. Inflation stands more than a percentage point higher than the Federal Reserve's target rate of 2%.
Additionally, the average price of a gallon of gas in the U.S. is $4.48, according to AAA, marking a 50% jump since the Iran war began.
The Federal Reserve raised interest rates last week in an effort to address a monthslong surge of inflation. The move marked the central bank's first rate increase since July 2023.
"The plain fact is that inflation is too high and has been for too long," Fed Chair Kevin Warsh said at a press conference in Washington, D.C., last week.
Higher interest rates raise borrowing costs for consumers and businesses, which in theory should combat inflation by slowing the economy and eating away at demand. However, that also means borrowers could face higher costs for everything from car loans to credit card debt to mortgages, potentially putting a damper on shoppers eager for a big-ticket purchase and businesses trying to expand.
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