June Mortgage Outlook: Rates Could Climb as Hopes Fade for a Fed Cut

Mortgage rates are expected to rise in June, driven by ongoing Middle East tensions and potential shifts in Federal Reserve communications, extending a climb that began with the U.S. war with Iran [1]. The average 30-year mortgage rate increased from 6.16% in April to 6.35% in May, adding about $35 to the monthly payment on a $300,000 loan [1]. Markets project the Federal Reserve will leave its overnight borrowing rate unchanged at its June meeting, but a key summary of economic projections due for release could signal future policy shifts [1]. If the report indicates worsening inflation, lenders may preemptively raise mortgage rates [1]. The conflict with Iran has triggered a global energy crisis, with the closure of the Strait of Hormuz causing the "largest supply disruption in the history of the global oil market" and pushing Brent Crude past $120 per barrel [2]. This has echoed past inflation surges, where central banks globally responded by aggressively increasing interest rates [3]. The Fed, having rapidly raised rates from March 2022 to August 2023 to combat inflation, is now navigating a volatile economic landscape [4]. Rising energy prices have stoked inflation fears, but mortgage rates have been partially cushioned by Fannie Mae and Freddie Mac, which have been buying billions in mortgage-backed securities to support liquidity [1]. "At Fannie Mae, our mission guides how we operate, which is especially important today as the macroeconomic environment is adding uncertainty to an already challenging housing market," said Peter Akwaboah, the agency's acting CEO [1]. Despite these interventions, forecasts have been revised upward. Fannie Mae's May projection now expects the 30-year rate to remain at 6.3% through mid-2027, while the Mortgage Bankers Association projects an average of 6.5% by year-end [1]. The Fed's communications under new chair Kevin Warsh, who has advocated for less transparency, add another layer of uncertainty for rate-watchers [1].