Mortgage Rates Hit 7% as War Increases Housing Market Pressure

The New York Times reports that mortgage rates have climbed above 7% for the first time since January 2025, another economic consequence of the war with Iran that could make buying a home increasingly difficult for American families.

The average rate on a 30-year fixed mortgage reached 7.03% this week, according to Freddie Mac. That’s up from 6.3% a year ago and a sharp reversal from February, when rates briefly fell below 6%.

The increase comes as the Iran war continues to disrupt energy markets. Higher oil and fuel prices have intensified concerns that energy costs will spread through the economy, keeping inflation elevated and interest rates higher.

Those effects are already showing up. Consumer prices were 3.4% higher in August than a year earlier, while energy prices were up 16.3%. The Federal Reserve responded this month by raising its benchmark interest rate by a quarter percentage point.

Why mortgage rates are rising

Mortgage rates aren’t set directly by the Federal Reserve. They are strongly influenced by the bond market, particularly the yield on the 10-year U.S. Treasury.

When investors expect higher inflation and interest rates, Treasury yields tend to rise. Mortgage lenders generally demand higher rates as well.

The result is another affordability problem for prospective homebuyers already confronting historically high home prices.

A one-percentage-point increase in a mortgage rate can add hundreds of dollars to the monthly payment on a typical home loan and tens of thousands of dollars in interest over the life of the mortgage.

A housing market already under pressure

Higher rates are hitting a housing market that was already struggling.

Existing-home sales fell another 2% in August and were 1.2% lower than a year earlier, according to the National Association of Realtors. The median existing-home price was still $429,100—1.6% higher than a year earlier.

Buyers squeezed from both directions

That leaves buyers squeezed from both directions: home prices remain high while borrowing the money to buy them has become considerably more expensive.

Higher rates can also discourage existing homeowners from selling. Millions refinanced or purchased homes when mortgage rates were near historic lows, giving them little financial incentive to trade a 3% or 4% mortgage for one approaching 7%.

Supply-side costs also increased

Builders face higher financing costs as well, potentially slowing the construction of new homes that could help ease housing shortages.

The Iran war didn’t create America’s housing affordability problem. High home prices, limited supply and elevated borrowing costs were already weighing on the market.

But the economic fallout from the war has added another layer of pressure, and the return of 7% mortgages makes the path toward a more affordable housing market considerably harder.