US mortgage rates hit nine-month high as inflation concerns grow

The interest rate on the most popular US home loan climbed to a nine-month high last week as elevated oil prices linked to the Iran war fueled inflation concerns and pushed Treasury yields higher.

According to data released by the Mortgage Bankers Association on Wednesday, the average rate on the 30-year fixed-rate mortgage rose by 9 basis points to 6.65% in the week ended May 22.

The rate was last higher in August 2025, before the Federal Reserve began a series of interest rate cuts aimed at preventing further weakness in the labour market.

Inflation concerns drive Treasury yields higher

The rise in mortgage rates came as financial markets reacted to persistent inflation pressures and elevated oil prices linked to geopolitical tensions surrounding Iran.

Consumer prices rose 3.8% in April from a year earlier, compared with 2.9% in August, indicating inflationary pressures have intensified over recent months.

At the same time, the US labour market has remained relatively stable.

The unemployment rate currently stands at 4.3%, unchanged from the level recorded last August.

With inflation showing signs of persistence, an increasing number of Federal Reserve policymakers have indicated they may need to consider raising interest rates instead of cutting them further.

Market concerns that inflation may not simply reflect temporary energy price increases have also contributed to rising Treasury yields, which directly influence mortgage borrowing costs.

Mortgage rates are loosely linked to the Federal Reserve’s benchmark short-term interest rate.

However, they tend to track movements in the benchmark 10-year US Treasury yield more closely.

Mortgage demand weakens sharply

Higher borrowing costs weighed on mortgage demand during the week.

The Mortgage Bankers Association said mortgage applications fell 8.5% from the previous week, largely due to a decline in refinancing activity.

The increase in mortgage rates has added pressure on prospective homebuyers and homeowners seeking to refinance existing loans, as borrowing costs continue to rise amid uncertain economic conditions.

Leadership change at the Federal Reserve

The latest increase in mortgage rates also coincided with a leadership transition at the Federal Reserve.

Kevin Warsh officially took over as chair of the Federal Reserve, succeeding Jerome Powell.

Powell had faced repeated criticism from Donald Trump over interest rate policy, with Trump arguing that rates remained too high.

Hours after Warsh was sworn in during a White House ceremony, Trump said he expected interest rates to decline.

Despite Trump’s comments, financial markets are increasingly pricing in the possibility that the Federal Reserve could raise rates before the end of the year as inflation risks persist.

Treasury yields ease on Strait of Hormuz hopes

While mortgage rates moved higher last week, US government bond yields have fallen in recent days.

The decline came amid hopes of a potential breakthrough agreement to reopen the Strait of Hormuz, easing some concerns over global energy supply disruptions.

Investors continue to closely monitor developments in oil markets, inflation trends, and Federal Reserve policy signals for further direction on borrowing costs and the broader economic outlook.