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• US mortgage rates climbed to a nine-month high, with the average 30-year fixed mortgage rate rising to 6.65% in the week ended May 22.
• Rising oil prices linked to the Iran conflict increased inflation concerns and pushed US Treasury yields higher, impacting borrowing costs.
• Mortgage applications declined 8.5% week-on-week, mainly due to weaker refinancing activity as higher rates reduced borrower interest.
• US inflation rose to 3.8% in April from 2.9% in August last year, leading markets to consider the possibility of another Federal Reserve rate hike later this year.
• The rise in mortgage rates comes shortly after Kevin Warsh took over as the new Federal Reserve chair, replacing Jerome Powell.
The rate on the most widely used home loan in the United States rose to a nine-month high in the past week as elevated oil prices and inflation concerns continued to pressure borrowing costs and housing demand. Advertisement
Data released by the Mortgage Bankers Association (MBA) showed that the average rate on a 30-year fixed mortgage increased by 9 basis points to 6.65% for the week ended May 22. Mortgage rates were last at a higher level in August 2025, before the US Federal Reserve began cutting interest rates to prevent further weakness in the labour market.
The rise in mortgage rates follows continued geopolitical tensions linked to the Iran conflict, which kept oil prices elevated and pushed benchmark US Treasury yields higher. Mortgage rates in the US generally track the movement of the 10-year Treasury yield more closely than the Federal Reserve’s benchmark policy rate.
Inflation in the US has also shown signs of strengthening in recent months. Consumer prices rose 3.8% in April compared to the same period a year ago, up from 2.9% recorded in August last year. The persistence of inflation has led several Federal Reserve policymakers to indicate that interest rates may need to remain elevated for longer, with some even considering the possibility of another rate increase if price pressures continue.
At the same time, the US labour market has remained relatively stable. The unemployment rate stood at 4.3%, unchanged from the level seen in August 2025. The combination of steady employment conditions and higher inflation has shifted market expectations around future monetary policy decisions.
The increase in borrowing costs has already affected housing finance activity. Mortgage applications declined 8.5% from the previous week, mainly due to weaker refinancing demand as higher rates reduced the incentive for homeowners to refinance existing loans.
The development also coincided with leadership changes at the Federal Reserve. Kevin Warsh recently took charge as the new Fed chair, succeeding Jerome Powell. President Donald Trump, who had repeatedly criticised Powell for maintaining high interest rates, said after Warsh’s swearing-in ceremony that he expected rates to move lower going forward.
However, financial markets have taken a more cautious view. Investors are increasingly factoring in the possibility that the Federal Reserve could raise rates again before the end of the year if inflation remains elevated and energy prices continue to create upward pressure on costs.
US government bond yields, meanwhile, eased slightly this week following hopes of progress in discussions around reopening the Strait of Hormuz, an important global oil shipping route that has remained under focus amid geopolitical tensions.
Source Reuters
5th Jun, 2025
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