US Mortgage Rates Reach One-Year High Amid Geopolitical Tensions

The average 30-year fixed mortgage rate reached 6.85% last week, according to the Mortgage Bankers Association, representing the highest level in over a year. Freddie Mac reported a similar trend with a reading of 6.71%.

This increase is linked to the conflict between the US and Iran, which has pushed oil prices toward $100 per barrel. The resulting inflation fears have triggered a sell-off in the bond market, causing the 10-year Treasury yield to rise to nearly 4.8%, a level not observed since late 2023. Mortgage rates typically track these yields, and since the escalation of the conflict in late February, mortgage rates have increased by 73 basis points.

The rise in financing costs has impacted market activity. For the week ending September 4, overall mortgage applications declined by 2.7%, while refinancing applications fell by 6.2%.

Inflation has remained above the Federal Reserve’s 2% target for more than five and a half years. While there were expectations earlier in 2026 that rates might stabilize, these have been affected by the geopolitical premium in energy markets. President Trump has publicly requested rate reductions, highlighting a tension between political goals and monetary policy.

The Federal Reserve is scheduled to meet on September 15-16. Future inflation data will likely influence whether the central bank maintains its current stance or shifts policy. Some market participants who previously expected rate cuts in late 2026 may now see those expectations delayed until 2027.

The current rate environment has created a supply-demand mismatch in the housing market. Sellers with existing low-rate mortgages are less likely to list their homes, while the pool of qualified buyers has shrunk. This trend also impacts lenders, as fewer home sales and reduced refinancing activity lower origination fees and revenue.