(CNN) — Geopolitical tensions are spreading through the American housing market, increasing the financial strain on homebuyers.
The average rate on a 30-year fixed mortgage rose to 6.55% this week—the highest level in nearly a year—after new strikes in Iran rocked financial markets.
The rise all but dampens the optimism that defined the start of the spring home-buying season, when many economists expected falling mortgage rates would help thaw the housing market.
In February, the average mortgage rate briefly fell below 6% for the first time in three and a half years. But fighting that erupted days later in the Middle East changed that trajectory, pushing bond yields and mortgage rates higher as investors feared the conflict would keep oil prices and inflation high.
And there are signs that higher mortgage rates are keeping potential buyers out of the market.
Pending home sales in June fell 5.4% from the previous month and 0.3% from a year ago, according to a report from the National Association of Realtors released Thursday.
“The highest mortgage rates in nearly a year and a record high national median home price are combining to contribute to a weak housing market that is especially difficult for first-time homebuyers,” said NAR Chief Economist Lawrence Yun.
Mortgage applications also fell 7% last week and are 2% lower than last year, according to the Mortgage Bankers Association.
Mortgage rates are generally in line with the 10-year Treasury yield, which was volatile late last week and early this week as tensions between the U.S. and Iran resumed following a brief ceasefire.
A temporary pause in fighting last month led to a fall in energy prices – and, in turn, a cooling of inflation.
Annual inflation was 3.5% in June, down from 4.2% in May, according to consumer price index data released Tuesday by the Bureau of Labor Statistics. Falling energy prices were the main reason for the decline.
But the resumption of fighting in the past two weeks has led to a new rise in oil prices. After a brief respite, the average gas price rose 15 cents over the week to $3.94 per gallon.
“Mortgage rates are sandwiched between cooler inflation data and renewed energy risks,” said Cara Ng, senior economist at Zillow. “Lower inflation in June reduced the likelihood of a near-term Federal Reserve rate hike, but higher oil prices continue to weigh on the inflation outlook and borrowing costs.”
Despite recent economic turmoil, Zillow still expects mortgage rates to fall, albeit slightly, to 6.4% by the end of 2026. However, this will still be higher than the rates that ended last year.
A sweeping, bipartisan housing affordability measure officially became law last week, signaling that Congress recognizes the frustration many Americans feel about the high cost of housing.
The bill aims to increase the supply of housing on the market through a number of measures, and also includes a first-of-its-kind restriction on private equity purchasing single-family homes.
However, the law does not address mortgage rates, which are set by the bond market. President Donald Trump objected to the housing bill, which automatically became law without his signature. In one social media post expressing his opposition, Trump said the law “takes a back seat to lower interest rates.”
The-CNN-Wire
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