The average rate on a 30-year fixed-rate mortgage in the United States rose last week to its highest point in nearly a year, increasing borrowing costs for homebuyers amid ongoing affordability challenges. According to mortgage buyer Freddie Mac, the benchmark 30-year mortgage rate climbed to 6.55% from 6.49% earlier this month. While still below the 6.75% average recorded a year ago, the recent increase marks a reversal from rates dipping below 6% in late February for the first time since 2022.

Mortgage rates generally track the yield on the 10-year Treasury note, which lenders use as a pricing benchmark. The 10-year yield was 4.57% midday Thursday, up from 4.54% a week earlier and significantly higher than the 3.97% recorded before Russia’s invasion of Ukraine in late February. Analysts cite geopolitical tensions and rising crude oil prices related to the conflict with Iran as factors driving expectations for higher inflation and, consequently, pushing long-term bond yields and mortgage rates upward.

Rates on 15-year fixed mortgages also increased, rising to an average of 5.93% from 5.82% earlier this month. A year ago, the 15-year rate was 5.92%. These shorter-term loans are commonly sought by homeowners looking to refinance.

The Federal Reserve’s monetary policy continues to influence mortgage rate trends indirectly. Although the Fed does not set mortgage rates directly, its decisions on short-term interest rates affect bond markets and investor expectations. A recent report indicating a slowdown in consumer prices for gasoline, apparel, and other goods suggests moderating inflation pressures, which could alleviate some pressure on the Fed to raise rates further. However, economists note that mortgage rates have yet to mirror this easing, leaving many potential buyers facing high borrowing costs.

Hannah Jones, senior economist at Realtor.com, stated that while the cooler inflation figures are a positive sign, the persistence of elevated mortgage rates means buyers still feel the financial strain, even as other economic conditions improve.

The upward trend in mortgage rates has contributed to softness in the housing market so far this year. Pending home sales, which reflect contracts signed but not yet completed, fell 5.4% in June compared to the previous month and were down 0.3% year-over-year, according to the National Association of Realtors. This downturn signals potential declines in finalized home sales during the summer months.

Mortgage application data further underscores this hesitation among buyers. The Mortgage Bankers Association reported a 2.7% decline in total mortgage applications two weeks ago compared with the week prior, driven largely by a 7% drop in purchase loan requests. As borrowing costs continue to rise, many prospective homeowners appear to be delaying or reconsidering their plans amid an already challenging affordability environment.