Mortgage rates tick slightly higher amid Iran, inflation uncertainty

• The 30-year fixed mortgage rate increased to 6.49%, while the 15-year rate rose to 5.84%, both remaining significantly lower than year-ago levels of 6.77% and 5.89% respectively
• The PCE inflation index showed headline inflation at 4.1% and core inflation at 3.4% year-over-year, both well above the Fed's 2% target
• Market expectations now favor the Fed holding rates steady or hiking rather than cutting rates this year, as geopolitical tensions and persistent inflation concerns weigh on policy decisions

Market Summary: Mortgage Rates Edge Higher Amid Economic Uncertainty

Key Developments

Mortgage rates increased marginally this week, with the 30-year fixed mortgage rate rising to 6.49% from 6.47% the previous week, according to Freddie Mac's Primary Mortgage Market Survey released Thursday. This represents a decline from 6.77% one year ago. The 15-year fixed rate climbed to 5.84% from 5.81% week-over-week.

Market Dynamics

Sam Khater, Freddie Mac's chief economist, noted rates have remained "relatively stable over the last six weeks." While purchase activity eased modestly, refinance activity has increased as borrowers respond to current rate levels. Mortgage rates track the 10-year Treasury yield, which hovered around 4.4% as of Thursday.

Economic Context

The Federal Reserve recently held its benchmark interest rate steady at 3.5%-3.75% following unanimous FOMC approval under new Fed Chair Kevin Warsh. This decision reflects concerns about persistent inflation, exacerbated by Middle East geopolitical tensions affecting oil supplies.

The Commerce Department's latest PCE index—the Fed's preferred inflation gauge—showed headline inflation at 4.1% year-over-year and core PCE at 3.4%, both significantly above the Fed's 2% target.

Market Outlook

The CME FedWatch tool indicates rates holding steady through year-end is most likely, with greater probability of rate hikes than cuts in 2025. The "dot plot" projections show nine of 17 FOMC members anticipating at least one rate increase before year-end.

Implications

The housing market faces continued pressure from elevated borrowing costs, though stabilized rates may provide some relief. Investors should monitor inflation data and geopolitical developments for directional changes in mortgage rates and housing sector performance.