(CNN) — Five months into the war in Iran, rising oil prices and stubborn inflation are driving mortgage rates to the highest level in a year.
The average 30-year fixed mortgage rate climbed to 6.66% this week, the highest since July of last year, according to Freddie Mac. That’s up from 6.58% last week, marking the biggest one-week jump in mortgage rates in 10 weeks.
Just a few months ago, mortgage rates dipped below 6% for the first time in years, fueling hopes that lower borrowing costs would revive the sluggish housing market.
But since the US and Israel began joint strikes on Iran in February, investors have grown increasingly concerned that higher energy prices will keep inflation elevated.
On Thursday, though, new inflation data showed that price increases slowed during a brief June truce in the Middle East. The Personal Consumption Expenditures price index dropped 0.1% from May, bringing the annual rate to 3.7%, according to the Commerce Department. The drop was largely driven by a temporary fall in energy prices that month.
Even with the reprieve, inflation is still significantly above the Federal Reserve’s target 2% inflation level.
Mortgage rates loosely track the 10-year Treasury yield, a key measure of investors’ inflation expectations. The yield recently climbed to its highest level since January 2025, reflecting expectations that interest rates will remain higher for longer.
But this week, the Fed voted to keep its benchmark interest rate steady. Still, some analysts interpreted Chairman Kevin Warsh’s comments about inflation to signal there could be rate hikes in the near future.
Warsh also said that market moves, like the recent rise in Treasury yields, may be partially doing the Fed’s job of taming inflation by causing higher borrowing rates to ripple through the economy – including in the form of elevated mortgage rates. The Fed doesn’t directly influence Treasury yields or mortgage rates.
“Oil and inflation remain the biggest drivers, and mortgage rates will likely need energy prices to settle and inflation to remain under control before they can move meaningfully lower,” said loanDepot head economist Jeff DerGurahian.
There are already signs that higher mortgage rates are slowing the engine of the housing market. Mortgage applications fell 6.4% last week from the week earlier, according to data released Wednesday from the Mortgage Bankers Association. Refinance applications plunged by 10% in a week, according to the report.
Still, today’s 30-year fixed rate is lower than this time last year – 6.72% in July, according to Freddie Mac. And in most of the country, wage growth has outpaced home-value growth this year. That has helped affordability, said Kara Ng, a senior economist at Zillow.
“Still, rising prices of everyday goods and services have eaten into those gains, limiting how much buyers can comfortably spend on a home,” Ng said.
The-CNN-Wire
™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.