Mortgage rates in the United States surged to 7.03 percent this week, marking the highest level since January 2025 and further challenging an already fragile housing market. The increase comes amid rising economic uncertainty linked to the ongoing conflict involving Iran, exacerbating pressures on American households facing elevated energy costs.
The 30-year fixed-rate mortgage, the most widely used home loan product, rose from 6.3 percent a year ago, according to data released Thursday by Freddie Mac. Rates had briefly dipped below 6 percent in late February, offering optimism of a potential recovery in the housing sector. However, following coordinated U.S. and Israeli military actions against Iran on February 28, mortgage rates resumed an upward trajectory.
“The jump from 6 to 7 percent is significant,” said Stijn Van Nieuwerburgh, a finance professor at Columbia University’s Graduate School of Business, warning that the rise will likely further suppress demand in a market already under strain.
The conflict in the Middle East has disrupted oil shipments from the Persian Gulf, driving up prices for gasoline, diesel, and heating oil. Elevated energy costs have fueled inflationary pressures that economists fear could ripple throughout the broader U.S. economy. These concerns are reflected in financial markets, where yields on the 10-year Treasury note—an important benchmark influencing mortgage rates—have risen above 5 percent, a level not seen since before the 2008 financial crisis.
Inflation remains persistently above the Federal Reserve’s target, with an annual rate of 3.4 percent recorded in August. This has prompted the central bank to continue tightening monetary policy by raising interest rates, contributing to the rise in mortgage costs.
The higher borrowing costs have weighed heavily on the housing market. The National Association of Realtors reported a 2 percent decline in existing home sales from July to August, with sales levels at their lowest point since the previous year. Meanwhile, home prices increased by 1.5 percent annually in June, a slight acceleration from May’s 1.2 percent gain, according to housing data provider Cotality.
“Affordability has become a major barrier,” Professor Van Nieuwerburgh said, noting that the combination of higher prices and rising mortgage rates has effectively locked many potential buyers out of the market.
Mortgage rates had plummeted to historic lows of 2.65 percent in early 2021, sparking a surge in homebuying activity that led to competitive bidding and escalating prices. As rates began climbing around mid-2022, the market cooled, with many homeowners reluctant to sell and forfeit their low-rate loans.
The stagnant market has also impacted new construction. Bill Owens, chairman of the National Association of Home Builders, highlighted that rising mortgage rates, along with increased financing costs and affordability issues, continue to restrain new-home development.
Fitch Ratings senior director Eric Orenstein forecasted slower home sales and mortgage refinancing for the remainder of the year but expressed optimism that market activity would eventually pick up as homeowners are compelled by major life events, such as job changes, to move. He also pointed to increasing home equity—currently at a record $35 trillion, according to the Federal Reserve Bank of St. Louis—as a factor that might cushion the impact of rate increases over time.
In addition, Professor Van Nieuwerburgh expressed optimism about the 21st Century ROAD to Housing Act, passed by Congress in June, which aims to boost local housing supply by easing regulatory barriers for builders.