US Mortgage Rates Climb to Nine-Month High as Inflation Concerns Weigh on Housing Demand

June 1: Data released by the Mortgage Bankers Association (MBA) showed that the average rate on a 30-year fixed mortgage increased by 9 basis points to 6.65 per cent for the week ended May 22. Mortgage rates were last at a higher level in August 2025.

Drivers of Rate Increase

The rise in mortgage rates follows continued geopolitical tensions linked to the Iran conflict, which kept oil prices elevated and pushed benchmark US Treasury yields higher. Mortgage rates in the US generally track the movement of the 10-year Treasury yield more closely than the Federal Reserve's benchmark policy rate.

Inflation and Fed Outlook

Inflation in the US has shown signs of strengthening in recent months. Consumer prices rose 3.8 per cent in April compared to the same period a year ago, up from 2.9 per cent recorded in August last year. The persistence of inflation has led several Federal Reserve policymakers to indicate that interest rates may need to remain elevated for longer, with some considering the possibility of another rate increase.

Impact on Housing Finance

The increase in borrowing costs has already affected housing finance activity. Mortgage applications declined 8.5 per cent from the previous week, mainly due to weaker refinancing demand as higher rates reduced the incentive for homeowners to refinance existing loans.

Fed Leadership Change

The development coincided with leadership changes at the Federal Reserve. Kevin Warsh recently took charge as the new Fed chair, succeeding Jerome Powell. While President Trump has expressed expectations for lower rates, financial markets are increasingly factoring in the possibility that the Fed could raise rates again before the end of the year if inflation remains elevated.