Average 30-Year Fixed Mortgage Rate Hits 6.66%, Highest in a Year

The average 30-year fixed-rate mortgage hit 6.66% this week, according to the Federal Home Loan Mortgage Corp., commonly known as Freddie Mac.

That's the highest it's reached in a year — at the end of last July, the average rate was 6.72%. The biblically ominous 6.66% figure could strike fear into homebuyers because it's a sign that home ownership is becoming less affordable.

Last summer, rates were falling, and the decline continued into early this year. Rates even dipped below 6% in February, raising hopes that this would unlock a tepid housing market, in which home seekers have been reluctant to buy and homeowners have been loath to give up lower pandemic-era rates.

But then the war with Iran and the closure of the Strait of Hormuz raised the price of oil. Rising oil prices meant more expensive shipping costs, which drove up the price of just about everything. That in turn drove up the yield on the 10-year Treasury note, a kind of security that is backed by the U.S. government. It's considered an indicator of which way other interest rates are trending — and mortgage rates closely follow.

"Oil prices always swing mortgage rates," said Kara Ng, senior economist at Zillow. "You get a real-time read every time you go to a gas pump about what it means to buy a home."

The average for a gallon of regular on Thursday was $4.10, according to AAA, about $1.11 higher than before the war began.

Kate Wood, a housing expert for the financial advice website NerdWallet, said that because the fighting in Iran has gone through so many pauses and restarts, investors' fears won't be calmed without a significant signal that the conflict is coming to an end.

"The best bet would be a decisive, conclusive, actually-sticks end to fighting in Iran," Wood said. But, she added, even then investors could remain skeptical: "Markets might be a little bit once bitten, twice shy."

Those same investors were also spooked after the Federal Reserve on Wednesday signaled that an interest rate hike could be on the way in September, even as it held its benchmark interest rate steady for now.

Three of the central bank's rate-setting committee members voted for a hike. That wasn't enough to alter the outcome, but markets saw the rare split as indication that a higher rate could be coming in the near future.

The sticker price for homes has also contributed to the tepid housing market. Sales have barely moved over the last three years, according to the National Association of Realtors. In June, the average existing home sold for more than $440,000, while sales themselves declined 2.4% from a year earlier.