U.S. Mortgage Rates Decline as Treasury Yields Fall Amid Iran Peace Deal

Average long-term U.S. mortgage rates decreased this week, influenced by dropping Treasury yields following an announced peace agreement with Iran. Freddie Mac reported on Thursday that the benchmark 30-year fixed-rate mortgage fell to 6.47% from 6.52% the prior week. One year ago, this rate was at 6.81%.

The cost of borrowing on 15-year fixed-rate mortgages, often chosen by those refinancing, also decreased. This average rate declined to 5.81% from 5.84% the previous week, with last year’s rate at 5.96%, according to Freddie Mac.

Factors affecting mortgage rates include Federal Reserve interest rate decisions and bond market expectations for economic conditions and inflation. Rates often mirror the 10-year Treasury yield, which helps lenders price home loans. Despite inflation staying above the Federal Reserve’s 2% target, the Fed kept the benchmark interest rate steady in a recent meeting, the first with new Fed Chair Kevin Warsh.

Many Fed officials expressed willingness to consider at least one rate hike this year. Rates had been generally increasing since the U.S.-Iran conflict began in late February, impacting crude oil transport from the Persian Gulf and driving up oil prices, inflation, bond yields, and mortgage rates. However, the recently reached tentative agreement between the U.S. and Iran is expected to open the Strait of Hormuz for oil trade, lowering the U.S. 10-year Treasury yield from 4.53% last week to 4.44% on Thursday. Before the conflict, in late February, it was at 3.97%.

Earlier this year, the average rate on 30-year mortgages fell just under 6% for the first time since late 2022, but has not dropped below that since. Two weeks ago, rates peaked at 6.53%, the highest since August 28.

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Despite current rates being lower than last year, their upward tendency and uncertainty about future increases have kept potential homebuyers cautious. Sales of previously occupied U.S. homes declined early this year, continuing a housing market slump that started in 2022 when rates climbed from low pandemic levels. April sales were stable, but May saw the fastest sales pace since December.

Sales of existing U.S. homes hover near a 4-million annual rate, which remains below the historical norm of about 5.2 million. The Mortgage Bankers Association noted a fall in applications recently, though they did increase 10.8% the prior week. Pending home sales rose last month, signaling potential improvement in the housing market as the year progresses.