Growing concerns over the course of the Iran war have pushed bond yields higher, and mortgage rates have followed suit.
The average interest rate on a 30-year fixed loan rose 7 basis points to 6.75% on Tuesday, according to Mortgage News Daily. This is the highest level since July 31st. Interest rates have risen 33 basis points in the past 10 days alone, and are 46 basis points higher than the recent April low of 6.29%.
This fall in April came after interest rates spiked at the start of the war, with rates jumping from 5.99% at the beginning of March to 6.64% by the end of the month.
Matthew Graham, chief operating officer of Mortgage News Daily, said: “The bonds are telling politicians to get serious about ending the war or face increasingly dire consequences.”
The increase from 5.99% to the current 6.75% is a meaningful change in housing affordability calculations. For buyers who bought a $420,000 home with a 20% down payment, which is about the national median home price, their monthly principal and interest payments would go from $2,012 to $2,179, a difference of $167.
Domestic home builders are somewhat insensitive to changes in interest rates, as they lower mortgage rates to attract buyers. Interest rates remain lower than a year ago, when they soared more than 7%.
“Interest rates are a challenge,” John Roballo, a homebuilder analyst at UBS, said in an interview Tuesday on CNBC’s “Squawk on the Streets.” “But we are still at a level where builders can operate effectively. As sharply as rates have risen, they could fall just as sharply if this war comes to some resolution and oil retreats.”
Robalo said he sees this as a buying opportunity in builder stocks, noting homebuilders still saw average orders increase throughout the spring season.
“Demand for housing remains strong,” he said.
Pending home sales increased both month-over-month and year-over-year in April, according to a Tuesday report from the National Association of Realtors.
“Despite heightened economic uncertainty and modest increases in mortgage rates, buyers remain cautiously optimistic,” NAR Chief Economist Lawrence Yun said in a release. “Demand could easily rise further if mortgage rates retreat to levels seen earlier this year.”
