Mortgage rates are dropping. Here's why.
Mortgage rates have fallen to their lowest level in more than a month as hope of a resolution to the Iran war ripples through financial markets.
The average interest rate on a 30-year fixed mortgage stands at 6.54%, dropping from a rate as high as 6.68% in mid-May, Mortgage News Daily data this week showed.
Still, mortgage rates stand well above their level before the war. Prior to the Middle East conflict in late February, a 30-year fixed mortgage clocked in at an average just below 6%.
The decline in mortgage rates over recent weeks has coincided with a drop in oil prices and Treasury yields. The shift has partially reversed a trend that took hold after the Iran war broke out.
At that time, mortgage rates surged in response to a jump in U.S. Treasury yields, or the amount paid annually to a holder of government debt. The rise in bond yields owed to fear of a renewed bout of inflation as oil prices climbed.
Since bonds pay a given investor a fixed amount each year, the specter of inflation risks higher consumer prices that would eat away at those annual payouts. In turn, bonds often become less attractive in response to economic turmoil. When demand falls, bond yields rise.
High bond yields make borrowing more expensive for average Americans, since 10-year Treasury rates influence the rates offered for a variety of loans, including mortgages and credit cards.
Bond yields eased in recent days as President Donald Trump signaled progress in negotiations with Iran, leading up to the announcement of an agreement late last week.
President Donald Trump said in a Sunday social media post that the U.S. and Iran had reached a deal that will open up the strait.
"I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade," Trump wrote.
"Ships of the World, start your engines. Let the oil flow!" he added.
In theory, a durable peace agreement could further soften upward pressure on oil prices and calm inflation risks. In turn, mortgage rates may fall.
In recent months, a double-whammy of increased prices and high mortgage rates has put homes out of reach for many buyers, some analysts previously told ABC News. Heightened economic uncertainty amid the Iran war has also paralyzed some buyers disenchanted by elevated consumer prices and a murky path forward for borrowing costs, they said.
Elevated mortgage rates have also contributed to a phenomenon known as the "lock in" effect.
Mortgage rates remain well above the rates enjoyed by most current homeowners, who may be reluctant to put their homes on the market and risk a much higher rate on their next mortgage.
Unfavorable market conditions have prompted many sellers to delist their homes. Nearly 5% of home listings were taken off the market in May, the highest share of delistings in the month of May since Realtor.com began collecting data in 2022, according to a report shared with ABC News.
The market could loosen up if mortgage rates were to ease, Ken Johnson, a real estate economist at the University of Mississippi. Such an outcome could prompt sellers to put their homes back on the market.
"If mortgage rates come down, you'll see listings go back up," Johnson said.
