Mortgage rates dip slightly as Fed hints at possible hike later this year

The average rate on a 30-year fixed-rate mortgage slipped to 6.47% this week, down from 6.52% the previous week, according to Freddie Mac data released Thursday. The modest decline follows a brief easing of Treasury yields after a U.S.–Iran peace initiative was announced earlier in the week.

Federal Reserve officials indicated on Wednesday that the central bank may consider raising interest rates later in the year in response to a recent surge in inflation linked to the conflict between the United States and Iran. The Bureau of Labor Statistics reported that annual inflation rose to its highest level in three years in May, accompanied by stronger-than-expected employment figures. Higher inflation expectations pushed the 10-year Treasury yield up, a key factor that influences mortgage rates.

“It’s clear that we’re in a new era and it’s going to take a while for markets to figure out how to react to today’s Fed meeting,” said Chen Zhao, head of economic research at Redfin. “But one thing is certain: the committee as a whole is taking inflation very seriously, which means mortgage rates are unlikely to retreat much in the near future.”

Pending home sales rose 3.8% month-over-month and 4.8% year-over-year in May, according to the National Association of Realtors. The association’s chief economist Lawrence Yun described the increase as a “late spring buyer rush,” suggesting that buyers are accepting mortgage rates above 6% as the new norm.

Analysts note that while the recent dip offers temporary relief, the prospect of a Fed rate hike could keep mortgage rates elevated, limiting further declines in the coming months.