A ‘lasting’ US-Iran deal could ‘help bring mortgage rates down’ 

Mortgage rates are starting to trend downward as investors digest the latest updates on the conflict in the Middle East and the steps Kevin Warsh is already taking as the Federal Reserve's new leader.

The reopening of the Strait of Hormuz sent oil prices down — and both bonds and mortgage rates are moving in a similar direction. After jumping to 6.62% on June 17 in the wake of Warsh's first press conference as Fed chair, the 30-year fixed-rate mortgage dropped a bit this morning to 6.58%, according to Mortgage News Daily (MND).

The 30-year rate also dropped on a weekly basis, with Freddie Mac — which uses a different set of metrics than MND in measuring rates — pegging it at 6.47% as of June 18, down from 6.52% one week earlier and from 6.81% a year ago.

Realtor.com Senior Economist Anthony Smith said the latest rounds of negotiations between the U.S. and Iran have proven more promising than previous periods of reprieve in the war, which began in late February.

"A lasting resolution to the conflict would help bring mortgage rates down, boost consumer confidence, and housing market momentum heading into summer, however, the path will likely be rocky," Smith said.

Fed's approach could keep rates elevated — for now

Smith said it may take investors some time to adjust to Warsh's initial moves as Fed chair, which have included shelving forward guidance and providing shorter statements from the Federal Open Market Committee. This period of adjustment could lead to higher rates — at first.

"The logic of Warsh's approach, earning credibility by following through rather than telegraphing, is sound and ultimately the path to lower long-term rates," Smith said. "But a market without clear guidance may demand a premium in the near term, which could keep mortgage rates from falling as quickly as the Iran ceasefire alone might suggest."

Mortgage rates will likely fluctuate in response to the bond market rather than to the Fed's moves "for the foreseeable future," said Kyle Bass, production business manager at Refi.com.

The past few months of elevated mortgage rates have done a number on housing affordability. Redfin estimates that the median U.S. monthly housing payment was $2,647 for the four weeks ending June 14 — the highest this year and only about $100 shy of the all-time high amount in 2023.

Mortgage applications fall

Following the June 10 release of May inflation data, mortgage rates ticked up early this week, leading to a decrease in mortgage application activity. The seasonally adjusted purchase index was down 3% from the week before while refinance applications fell 5%, according to the Mortgage Bankers Association (MBA).

"Last week's CPI data showed that inflation continued to move higher, putting upward pressure on rates early in the week," said Mike Fratantoni, MBA's SVP and chief economist. However, "growing optimism regarding the opening of the Strait of Hormuz brought rates down again by the end of the week," he added.

Inventory is shrinking

As NAR reported earlier this week, May saw an uptick in pending home sales across the country. This, however, has led to a drop in inventory. According to Compass Chief Economist Mike Simonsen, inventory is down about 1% year-over-year — and the gap is growing each week.

"The takeaway from the inventory data continues to be that supply is now shrinking compared to last year nationally. Even in markets where inventory is growing, in most of those it's growing less quickly," Simonsen said.