Surging oil prices, T-bonds push mortgage rates closer to 7%
The Iran war escalation is spooking financial markets and raising inflation concerns. And next week’s Fed meeting isn’t likely to “signal any immediate relief.”
Key points:
- The average 30-year mortgage rate jumped to 6.85% on Thursday, according to Mortgage News Daily.
- With fuel costs rising and inflation likely to increase in July, the odds of the Federal Reserve raising rates when it meets next week have gone up.
- Higher borrowing costs and gas prices are coming at a time when the housing market is already slowing following the spring homebuying season.
It appears that homebuyers could, once again, be dealing with 7% mortgage rates in the near future if the Middle East conflict drags on.
The latest Iran war developments sent oil prices skyrocketing today, spurring new inflation concerns, and U.S. Treasury bonds also jumped, impacting mortgage rates. The 30-year fixed-rate mortgage rose to 6.85% on July 23, according to Mortgage News Daily, up from 6.68% at the beginning of last week.
The rise in Treasury yields has been "a slow-motion train wreck playing out since March," Matthew Graham, MND chief operating officer, wrote in a post.
Graham noted, however, that mortgage rates steadily declined from July 2025 through February 2026, then dipped again last month when it appeared the war was ending.
"If peace finds a way to break out again, June serves as a proof of concept that rates can respond favorably," Graham wrote in an update.
Freddie Mac's survey, which uses a different set of metrics than MND, had the weekly average pegged at 6.58%, the highest level in nearly a year.
Upcoming Fed meeting 'unlikely to signal any immediate relief'
Given the recent war developments, a rate cut at next week's Federal Reserve meeting is almost certainly off the table, according to Realtor.com Economist Jiayi Xu.
Instead, some members of the Federal Open Market Committee (FOMC) could lean in the opposite direction as they consider ways to control inflation. The CME Group's "FedWatch" tool put the chance of a rate hike at nearly 36%.
Joel Berner, senior economist at Realtor.com, believes the Fed will leave rates unchanged next week, but the tone coming out of the meeting could offer clues about what the rest of 2026 will look like.
"It's no secret that still-high mortgage rates are holding the housing market back, and this month's FOMC is unlikely to signal any immediate relief," Berner said. With the Mideast conflict driving up inflation, "a resolution in tensions with Iran and reopening of the Strait of Hormuz is the clearest path to near-term relief."
Pending sales decline, but mortgage applications tick up
Meanwhile, the market appears to be continuing its seasonal downshift. Redfin estimates pending sales were down 1.3% for the week ending July 19, hitting their lowest level in three months, though they were up 3.1% compared to the same period in 2025.
Buyers who are still in the market — especially those willing to put in some sweat equity — generally have more leverage than they've had in years, according to Vanessa Leimback, a Redfin Premier agent in Seattle.
"Desirable, move-in ready homes can still be competitive because many people don't want to take on renovation costs while mortgage payments are high," Leimback said. "That's why the biggest bargains are often on fixer-uppers."
One surprise in this week's economic data was the rise in mortgage applications, which were up 1.9% overall, according to the Mortgage Bankers Association. While refinance applications slowed as mortgage rates climbed, the seasonally adjusted purchase index was up 6% compared to the week before, slightly higher than the pace seen a year ago.
"Growing home inventory in many markets is supporting more purchase activity," said Mike Fratantoni, MBA's chief economist. "Incoming data showed that inflation dropped in June, but with oil prices spiking again, that improvement seems unlikely to continue in July data, and mortgage rates are likely to remain higher as a result."