Mortgage Rates Rise as Inflation Reaches Three-Year High

Mortgage rates have climbed from the high 5 percent range to 6.62 percent as inflation reached its highest point in three years. The increase follows a steady rise in inflation that began in February. Officials have not reduced the federal funds rate in 2026 after three cuts last year.

Homeowners and buyers should reasonably expect mortgage rates to remain in the mid-to-upper 6 percent range for the balance of the year, with potential for rates to move into the 7 percent range if the Iran conflict is protracted, a board member for the Mortgage Bankers Association said.

This conflict has caused inflation, which causes investors to sell mortgage bonds, which pushes rates higher. Rising inflation is usually bad news for mortgage rates in the short term, a vice president and mortgage banker at William Raveis Mortgage said.

Higher inflation equals higher bond yields which in turn equal higher mortgage rates. The probability of a rate increase by year-end has climbed to 50 percent, a senior vice president at CrossCountry Mortgage said. There are no rate cuts currently on the board.

Higher inflation could eat into homebuying budgets, the vice president at William Raveis Mortgage said. As borrowing costs rise, buyers could qualify for smaller loans or have to stretch their budgets further to cover interest, taxes, insurance, and other housing expenses that also tend to climb during inflationary periods.

Inflation is eroding the purchasing power of buyers' savings, and the down payment they've been building feels smaller against a world where everything costs more, the senior vice president at CrossCountry Mortgage said. Also, for the first time in three years, real wages just went negative, meaning inflation is now growing faster than wages.