Escalating geopolitical tensions, particularly conflicts involving Iran, have triggered volatile energy prices, reigniting market fears of an inflation resurgence. Consequently, US mortgage rates have surged significantly, reaching their highest level in nearly a year. According to the latest data, as of Wednesday, the average rate for a 30-year fixed-rate mortgage in the US climbed to 6.58%, up from 6.55% the previous week. Meanwhile, the 15-year mortgage rate also edged up to 5.96%.

This shift in interest rates poses a fresh challenge to nascent market demand that had begun to emerge due to slight improvements in housing affordability. Analysts suggest that new geopolitical risks have introduced potential inflationary pressure, directly driving mortgage rates higher. This could turn previously favorable factors for the real estate market into headwinds. The 10-year US Treasury yield, which influences mortgage rates, also rose, primarily due to heightened tensions between the US and Iran. On Thursday, international oil prices surpassed the $100-per-barrel mark for the first time since May. Rising energy costs typically ripple through the overall price level via transportation and production channels, prompting investors to reassess future interest rate trajectories and inflation outlooks.

Against this macroeconomic backdrop, the financing environment in the mortgage market has become increasingly tight. Despite borrowing costs reaching their highest level since last August, the market has not come to a complete standstill. Data from the industry association shows that as of last Friday, mortgage applications for home purchases increased by 6% week-over-week, indicating that some buyers are still entering the market. The head of the industry association noted that with inventory conditions improving in many regions, potential buyers can still find opportunities to enter the market even amidst high borrowing costs. Improvements on the supply side have partially offset the negative impact of high rates. However, the market remains concerned that if geopolitical risks continue to drive up energy prices, Treasury yields and mortgage rates could remain elevated. This would continue to pose new challenges to transaction pace and affordability in the US real estate market.