Mortgage Rates Today, Thursday, July 9: Going Up

Mortgage rates edged higher Thursday as the U.S.-Iran ceasefire showed further signs of strain, pushing the average 30-year fixed rate to 6.42% APR, according to data provided to NerdWallet by Zillow [1]. The rate is three basis points higher than Wednesday and four basis points above the level recorded one week ago [1]. A basis point equals one one-hundredth of a percentage point. The renewed fighting has driven up oil prices and bond yields, and mortgage rates have followed upward [1]. Throughout the spring, mortgage rates were highly sensitive to events in the Middle East, but markets had settled after June's memorandum of understanding and a more durable ceasefire [1]. In recent weeks, rates had been responding primarily to domestic economic data and Federal Reserve updates [1]. Now, the Iran conflict is once again the dominant force, and if tensions continue to escalate, rates could climb further [1]. The Federal Reserve does not set mortgage rates directly, but its policy decisions influence borrowing costs across the economy [1]. The central bank focuses on two goals: price stability and maximum employment [1]. Inflation has remained above the Fed's preferred 2% level for years, a dynamic that intensified after the pandemic-era inflation surge that began in mid-2021 and saw the United States record its highest inflation rate since 1981 [5]. Central banks around the world responded by aggressively increasing interest rates [5]. Higher interest rates slow inflation by discouraging business borrowing and expansion, which can also slow hiring [1]. June job gains came in well below projections, at 57,000 compared to an anticipated 100,000 or more [1]. The unemployment rate dropped slightly, but only because fewer Americans were looking for work [1]. The weak jobs data had given the central bank room to remain in wait-and-see mode, especially with the ceasefire and the reopened Strait of Hormuz potentially alleviating war-driven inflation [1]. If the ceasefire collapses, inflation fears will ratchet back up and a Fed rate hike could come sooner, both of which would likely push mortgage rates higher [1]. The U.S. housing market has experienced severe rate-driven dislocations before. During the subprime mortgage crisis that unfolded between 2007 and 2010, a collapse of the housing bubble and high interest rates led to mass foreclosures and the devaluation of housing-related securities, ultimately contributing to a deep recession in which nearly 9 million jobs were lost during 2008 and 2009 [2]. U.S. housing prices fell nearly 30% on average and the stock market fell approximately 50% by early 2009 [2]. For homeowners considering a refinance, NerdWallet notes that it may make sense if today's rates are at least 0.5 to 0.75 of a percentage point lower than a current rate, which would put the threshold around 6.92% or higher [1]. Rate locks protect borrowers from increases while a loan is processed, and a float-down option allows borrowers to capture a better rate if the market drops during the lock period [1].