WASHINGTON — Rising geopolitical tensions in the Middle East are adding new pressure to the U.S. housing market, as higher mortgage rates and home prices continue to sideline many prospective buyers, a new report reveals.
The average rate on a 30-year fixed mortgage rose to 6.55% this week, its highest level in nearly a year, following renewed military strikes involving Iran that unsettled financial markets, CNN reported. The increase has reversed earlier optimism that mortgage rates would continue easing during the spring homebuying season.
Mortgage rates had briefly fallen below 6% in February for the first time in more than three years. However, renewed conflict in the Middle East pushed Treasury yields higher as investors grew concerned that rising oil prices could reignite inflation, leading mortgage rates to climb alongside bond yields, according to CNN.
The higher borrowing costs are showing signs of dampening housing demand.
Pending Home Sales Decline
Pending home sales fell 5.4% in June from the previous month and were down 0.3% compared with a year earlier, according to data released Thursday by the National Association of Realtors and cited by CNN.
“The highest mortgage rates in nearly a year and the record-high national median home price together are contributing to a tepid housing market that is especially difficult for first-time homebuyers,” National Association of Realtors Chief Economist Lawrence Yun said.
Mortgage applications also declined 7% last week and were 2% lower than a year earlier, according to Mortgage Bankers Association data reported by CNN.
Inflation data has offered mixed signals. The Consumer Price Index showed annual inflation eased to 3.5% in June from 4.2% in May, largely because of lower energy prices, according to Bureau of Labor Statistics data cited by CNN. However, renewed fighting has driven oil prices higher again, with the national average gasoline price rising 15 cents over one week to $3.94 per gallon.
Caught In-between
“Mortgage rates are caught between cooler inflation data and renewed energy risks,” Zillow Senior Economist Kara Ng told CNN. “Softer June inflation reduced the likelihood of a near-term Federal Reserve rate increase, but higher oil prices are keeping pressure on the inflation outlook and borrowing costs.”
Despite the recent volatility, Zillow expects mortgage rates to edge lower to about 6.4% by the end of 2026, according to CNN.
CNN also reported that Congress recently enacted bipartisan housing affordability legislation intended to increase housing supply and limit large-scale purchases of single-family homes by private equity firms. However, the measure does not directly address mortgage rates, which are largely driven by the bond market. President Donald Trump criticized the legislation and allowed it to become law without his signature, arguing that lower interest rates would do more to improve housing affordability, according to CNN.
