Rates inched higher this week and could remain elevated as the conflict drags on
Mortgage rates ticked up again this week, arresting a three-week slide – and continuing uncertainty over the rate outlook amid the ongoing US-Iran war still appears to be weighing on the housing outlook as the spring market clicks into gear.
Freddie Mac said on Thursday that the average 30-year fixed mortgage rate increased to 6.30% for the week ended April 30, moving borrowing costs slightly higher (but still significantly below their level from the same time last year).
Oil prices spiked again on Thursday after President Trump suggested the ongoing blockade of the Strait of Hormuz could continue for months, raising the prospect of broader inflation pressures and continuing pain at the pumps.
The Federal Reserve’s decision to keep interest rates on hold on Wednesday partly reflected its concern at the possibility of an inflationary surge, and elevated bond yields mean mortgage rates mightn’t see much relief anytime soon.
Melissa Cohn (pictured top), regional vice president at William Raveis Mortgage, told Mortgage Professional America the impact of the conflict on the mortgage outlook had only been negative, with the prospect of further damage if the economy weakens.
“Rates have probably gone up half a percent since the war began. And while yes, we got some easing [recently], banks have all been repricing for the worst today,” she said in the aftermath of the Fed’s latest decision. “The longer the war in Iran remains ongoing, the higher oil prices go, and the worse it’s going to get.”
Fed remains resolutely in wait-and-see mode
Fed chair Jerome Powell has previously suggested oil price jumps are often short-lived, but a prolonged conflict would likely keep those elevated prices more persistent and make the economic damage harder to unwind.
On Wednesday, the Fed’s statement underlined “risks to both sides of its dual mandate,” suggesting that both the economy and inflation could take a hit from a protracted conflict.
Some mortgage professionals hope that the central bank – particularly under its likely next chair, Kevin Warsh – will introduce steep rate cuts in the months ahead, potentially putting downward pressure on bond yields and by extension mortgage rates.
Warsh’s confirmation has moved a step further with the Department of Justice’s announcement that it was ending its investigation into Powell, which was viewed as a big impediment to Warsh’s chances of getting across the line.
Still, rate cuts by the central bank between now and the end of 2026 are by no means a slam dunk, particularly if the Iran war remains unresolved and inflation continues to climb.
Chances of sticky inflation and longer-than-expected price pressures could mean the Fed will stay on the sidelines throughout the entire year, Cohn said.
“You never know because everything changes and turns on a dime in this world, but it’s quite unlikely that the Fed is going to cut rates this year at all,” she said. “Certainly not at least through the summer, and things would have to change pretty radically for the Fed to be in a position to vote to cut rates.”
Don’t expect Warsh to wave a magic wand and lower rates
While many view Warsh, Trump’s nominee to replace Powell, as more receptive to the president’s views on rate policy and possible cuts, Cohn doesn’t see him being able to bring rates lower at the drop of a hat – not least because he’s just one of 12 Federal Open Market Committee (FOMC) members with a say in each decision.
“For [Warsh], the only argument he could make would be if we see the economy faltering, that you have to cut rates to prop up the economy even if inflation remains high,” she said. “But then, that’s a dangerous world to be in.
“I think that people are hoping that this war in Iran will end at some point, hopefully sooner versus later, although it doesn’t appear to be that way.”
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