The average rate on a 30-year fixed mortgage hit 6.66% for the week, according to Freddie Mac. That is up from 6.58% last week and not far from the 6.72% it sat at a year ago. The 15-year fixed mortgage also ticked up, landing at 6.04% compared with 5.96% the prior week.
Combined with the lock-in effect - where homeowners with sub-4% mortgages are hesitant to sell - this elevated rate environment continues to present headwinds for the housing market. However, as Freddie Mac's chief economist Sam Khater noted, increased inventory is offering buyers more choices and supporting activity.
The eight-basis-point increase comes after bond yields rose due to geopolitical tensions in Iran and the Fed's decision to keep rates unchanged at its most recent meeting.
While the Fed's rate moves don't have a direct impact on mortgage rates, these home loan costs tend to move in step with the 10-year Treasury note. As of Thursday afternoon, the 10-year Treasury yield was trading near 4.66%.
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On Wednesday, the Federal Open Market Committee decided by a 9-3 vote to keep the federal funds rate steady in its current band of 3.5% to 3.75%. This action continues a pattern of rate holds after the Fed cut rates by a quarter point each in September, October, and December last year, then paused in January, March, April, and June.
Sam Khater, chief economist at Freddie Mac, said, "The housing market continues to benefit from more available inventory, providing prospective homebuyers with additional options and helping support buyer activity as mortgage rates fluctuate."
The Federal Open Market Committee noted that "economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East."
Anthony Smith, senior economist at Realtor.com, said, "Would-be buyers, especially first-timers who tend to carry larger loans, are the most exposed to each uptick in borrowing costs, while owners holding sub-4% rates have little reason to list and swap into today's market."
Smith added, "That lock-in continues to cap inventory even as the sellers who do list increasingly price to move."
This persistent high-rate environment has created a paradox: although inventory has increased, many potential sellers remain sidelined, exacerbating affordability challenges for first-time buyers who lack the equity cushion of existing homeowners. Meanwhile, the Fed's cautious stance and geopolitical uncertainty keep borrowing costs elevated.
"With the Fed signaling that its next move is more likely a hike than a cut, near-term rate relief looks unlikely," Smith said.
Smith stated that "because oil remains the primary channel through which the Iran conflict feeds inflation, a de-escalation and a reopening of the Strait of Hormuz remains the clearest path back toward lower rates."
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