Why Are Mortgage Rates So High? What Can Lower Them?
2026 was supposed to be the year that sidelined homebuyers got some relief. Then, the Iran war and fears about rising inflation came along.
As of Sept. 3, mortgage rates had climbed 73 basis points since the war began in late February. The national average rate on a 30-year fixed mortgage rose to 6.71%, the highest since July 2025, according to Freddie Mac. Rates on 15-year fixed mortgages have been following a similar trajectory: The average rate hit 6.04%, a level that previously hadn’t been seen since February 2025.
With no end to the conflict with Iran in sight and renewed fears about rising inflation, economists are warning that mortgage rates could stay stubbornly high for months to come — or push even higher.
“It would not be surprising to me if we saw a 7% rate over this second half of the year,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
Why are mortgage rates so high?
The fear that inflation will get worse strongly affects what Americans pay to finance a major home purchase. That’s because mortgage lenders base 30-year fixed rates on the 10-year Treasury yield, which often rises when expectations of inflation rise.
The war has already increased prices and could push them higher if the conflict drags on. Brent crude oil topped $100 a barrel on July 23 and continues to hover above $95 as of early September. Retail gas prices have been holding above $4 on average across the country since mid-July, according to AAA. As such, since the war began in late February, the 10-year’s yield has increased about 80 basis points, slightly outpacing the increase in mortgage rates.
Why are mortgage rates based on the 10-year Treasury yield?
Mortgage rates reflect the risks of lending money long-term. Lenders base them on the 10-year Treasury to determine how much they need to charge to make a profit because those yields reflect investors’ expectations for inflation, interest rates and economic conditions in the long run.
Though the US government issues a 30-year bond, the 10-year is the basis for mortgage rates because homeowners tend to pay off or refinance their mortgages after a period that is much closer to 10 years, according to Lawrence Yun, chief economist at the National Association of Realtors.
In recent weeks, fears about mounting government debt, rising energy prices and massive tech company borrowing are making market participants wary of investing in US debt, driving up yields.
What would it take for rates to drop?
A deescalation of tensions in the Middle East or a resolution to the Iran war altogether would provide immediate relief. The average rate on a 30-year fixed mortgage drifted lower in early July when it looked like Iran and the US had reached a peace agreement.
“If oil prices were to retreat back down, if there’s some resolution in the Persian Gulf situation, maybe we can touch the 6% mortgage rate quite quickly,” Yun said.
A signal from the Fed that it is focused on inflation could also drive down mortgage rates, as could concerns about the economy or job market. Though hiring has picked up in 2026, disappointing jobs reports for both June and July raised concerns about the labor market. (However, US job growth beat forecasts in August and the unemployment rate held steady.) If economic momentum cools, or if more Americans are out of work, inflation will likely slow.
How are rates affecting the housing market?
Elevated mortgage rates have slammed the brakes on the housing market. Existing-home sales have fallen in three of the past six months, data from the National Association of Realtors shows. The share of listings with a pending sale status fell 0.2% in August from a year ago, the first negative reading since November 2025, according to Realtor.com’s latest monthly housing market trends report.
That’s bad news for sellers, but not entirely for buyers. Mortgage rates are only part of the affordability equation. Sellers outnumber buyers across the nation, and about one in five active listings has dropped in price. Home prices rose at a slower rate than inflation in June, according to August data from the S&P Cotality Case-Shiller Home Index.
“Housing affordability is improving, believe it or not,” Yun said.
This article was provided by Bloomberg News.
