Mortgage Rates Dip in Hope of War’s End

Mortgage rates fell sharply Thursday on hopes for an end to the war in Iran, but remain volatile after rising earlier in the week [1]. The average 30-year fixed-rate mortgage reached 6.24% APR for the week ending May 7 [1]. Rates dropped day-over-day as markets reacted to Iran considering a U.S. proposal to end the conflict, though the decline did not erase recent increases [1]. Mortgage rates are benchmarked to the 10-year Treasury note, whose yield rose when the war began and pushed borrowing costs higher [1]. The conflict has driven daily rate movement for over two months, with fears that disruptions to oil shipments via the Strait of Hormuz could intensify inflation [1]. Inflation concerns have troubled the bond market, as the fixed returns of bonds become less desirable, pushing yields up [1]. Core inflation, excluding food and energy, was 3.2% in March, above the Federal Reserve's 2% target [1]. The Fed's dual mandate is to control inflation and support a strong job market [1]. While the Fed does not set mortgage rates, its decisions on the federal funds rate strongly influence borrowing costs, and expectations of future Fed actions often move markets [1]. Renewed hostilities in Iran would likely send mortgage rates higher again, as President Trump has threatened military action if talks break down [1]. For the longer term, the trajectory of the U.S. economy and the Fed's policy response to inflation will be key determinants of where rates settle [1].