US mortgage rates decline following Iran peace agreement and falling Treasury yields

Average long-term mortgage rates in the United States fell this week, tracking declines in Treasury bond yields following an interim agreement to end the conflict between the US and Iran. The 30-year fixed mortgage rate dropped to 6.47% from 6.52% the previous week, according to Freddie Mac, which tracks mortgage purchases. The 15-year fixed mortgage rate, commonly used by homeowners refinancing loans, declined to 5.81% from 5.84%, the mortgage finance company reported.

Mortgage rates are influenced by multiple factors, including Federal Reserve decisions on interest rates and market expectations regarding economic growth and inflation. Rates typically follow the 10-year Treasury yield, which lenders use as a benchmark for pricing home loans. The 10-year Treasury yield fell from 4.53% the previous week to 4.44% as geopolitical tensions eased. This represents a recovery from 3.97% at the end of February, before the conflict escalated.

The rate declines come after the Federal Reserve held its benchmark interest rate unchanged on Wednesday at the first meeting under new Fed Chair Kevin Warsh, who replaced Jerome Powell after eight years leading the central bank. Several Federal Reserve policymakers signaled willingness to consider at least one rate increase later this year, as inflation remains significantly above the central bank's 2% target.

Mortgage rates had generally risen since late February when the US-Iran conflict disrupted crude oil flows from the Persian Gulf, driving petroleum prices higher and contributing to increased inflation and bond yields. The provisional agreement reached this week allows Iran to open the Strait of Hormuz and sell oil freely, reducing market uncertainty and downward pressure on Treasury yields.

Despite this week's decline, 30-year mortgage rates remain above the levels seen in late February when they briefly dipped below 6% for the first time since late 2022, and they have not fallen below that threshold since. Housing market activity reflects ongoing caution among prospective buyers. Existing home sales fell in the first quarter compared to the prior year, continuing a slowdown that began in 2022 when mortgage rates started rising from pandemic-era lows. However, May sales accelerated to their fastest pace since December, and pending home sales also increased last month—signs of potential market stabilization in the second half of the year. Annual home sales volume continues to hover around 4 million, well below the historical norm of approximately 5.2 million.