The U.S. 30-year mortgage rate rose to 6.85%, a new high in more than a year.

The war with Iran has driven up energy prices and inflation expectations, while mortgage costs in the United States continue to rise, suppressing loan demand.

According to data released Wednesday by the Mortgage Bankers Association (MBA), the interest rate on 30-year fixed-rate mortgage contracts rose 6 basis points to 6.85% in the week ending September 4, the highest level in over a year. Since the start of the war with Iran in late February, the rate has risen by approximately 75 basis points, primarily driven by inflationary pressures fueled by higher energy prices.

Loan demand is therefore under pressure. The MBA refinancing index has fallen to its lowest level since May 2025, mortgage applications continue to shrink, and housing demand is also weakening.

U.S. consumer price data due on Friday is expected to show that overall inflation rose 3.4% year-on-year in August, with rising energy costs being the main contributing factor. Federal Reserve officials are closely monitoring inflation trends to assess the next steps in interest rate policy.

Interest rates continue to rise due to the impact of the Iraq War.

Before the outbreak of the Iran war, U.S. mortgage rates had fallen to their lowest level since 2022.

Following the outbreak of war, rising energy prices exacerbated inflation concerns, cooling market expectations for a Federal Reserve rate cut and driving borrowing costs up continuously. As of last week, the 30-year mortgage rate had risen by approximately 75 basis points from its pre-war low to 6.85%.

Meanwhile, the rate on 5-year adjustable-rate mortgages (ARMs) has fallen to 6.13% last week, as some borrowers are turning to floating-rate products to cope with the pressure of high fixed rates.

Loan demand weakens

Rising borrowing costs have significantly weighed on the housing finance market. The MBA refinancing index fell 6.2% last week, hitting its lowest level since May 2025; the MBA home purchase index, which measures new home loan applications, declined slightly by 0.2% from the previous week.

The contraction in refinancing activity was particularly pronounced. Refinancing transactions are highly sensitive to interest rate changes, and the continued rise in interest rates has made it difficult for borrowers who previously intended to reduce their monthly payments to do so.

Markets are focused on inflation data and the Federal Reserve's actions.

The market is currently focused on the August CPI data to be released this Friday. Expectations indicate that overall inflation will rise by 3.4% year-on-year, driven by energy prices. This data will provide important information for Federal Reserve officials to assess inflation trends and determine the path of interest rates.

The Federal Reserve currently faces a dilemma: on the one hand, it needs to address supply-side inflationary pressures triggered by the war; on the other hand, it needs to balance economic growth and the pressure on the housing market. Mortgage rate trends will largely depend on the Fed's next policy signals.

The MBA mortgage survey has been conducted weekly since 1990, covering mortgage banks, commercial banks, and savings institutions, and its data covers more than 75% of all retail residential mortgage applications in the United States.

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