US mortgage rates reach highest level in nearly a year

Geopolitical tensions are spreading across the US housing market, causing homebuyers to face even greater financial difficulties.

This week, the average 30-year fixed mortgage rate in the US reached 6.55% – the highest in nearly a year. The main reason is the renewed tension in the Middle East, which has worried the financial markets.

The rise in mortgage rates has almost wiped out the optimism from earlier this year. Back then, many economists expected that falling rates would help revitalize the housing market.

In February, the average mortgage rate briefly fell below 6% for the first time in over three years. However, the conflict that erupted in the Middle East just a few days later reversed this trend. Bond yields and mortgage rates were pulled up as investors worried that the war would keep oil prices and inflation high.

The average 30-year fixed mortgage rate in the US from 2017 to 2026. Chart: CNN

Currently, there are many signs that high mortgage rates are pushing many prospective homebuyers out of the market. According to a report by the National Association of Realtors (NAR) on July 16, pending home sales in June fell by 5.4% compared to the previous month and dropped 0.3% compared to the same period last year.

“The combination of mortgage rates at their highest in nearly a year and record-high national median home prices has stalled the housing market. This situation is particularly challenging for first-time homebuyers,” said Lawrence Yun, chief economist at NAR.

Mortgage applications also fell 7% last week and dropped 2% compared to the same period last year, according to data from the Mortgage Bankers Association.

Mortgage rates typically move in tandem with the 10-year US Treasury yield. This yield fluctuated widely late last week and early this week as US-Iran tensions flared up again after a brief ceasefire.

Geopolitical tensions are driving oil prices back up. After a brief cooling-off period, the average gasoline price in the US rose by 0.15 USD in just one week, to 3.94 USD per gallon (1.04 USD per liter).

“Mortgage rates are currently caught between cooling inflation and new risks from energy prices,” said Kara Ng, senior economist at real estate brokerage Zillow.

“June’s declining inflation reduces the likelihood of the Federal Reserve raising interest rates in the short term, but high oil prices put pressure on the inflation outlook and borrowing rates,” she explained.

Despite recent economic volatility, Zillow still forecasts mortgage rates to gradually decline to around 6.4% by the end of this year. However, this level is higher than at the end of last year. Last week, a bill aimed at lowering housing prices in the US took effect, showing that the US Congress is aware of many citizens’ frustration over high housing costs.

This law aims to increase housing supply through various measures, while also limiting private funds from buying up single-family homes for the first time.

However, the act does not address mortgage rates, which are determined by the bond market. US President Donald Trump opposed this housing bill, though the text automatically took effect without his signature. In a social media post, Trump argued that this act was “not as important as lowering interest rates.”

Ha Thu (according to CNN)