Iran War Fuels Added Inflation and Mortgage Rate Pressure
According to Freddie Mac, U.S. mortgage rates surged to their highest level in nearly three years on October 1, 2026, adding fresh pressure to a housing market already constrained by elevated borrowing costs and weakening demand.
The average rate on a 30-year fixed mortgage rose to 7.28% on Thursday, up from 7.03% a week earlier and 6.34% a year ago, Freddie Mac said. The increase was the largest weekly jump in roughly four years. The 15-year fixed rate climbed to 6.60% from 6.42%.
The latest increase comes as financial markets price in persistent inflation and higher energy costs stemming from the war involving the U.S., Israel and Iran. The conflict has disrupted global energy markets, pushing up fuel costs and adding to inflation concerns, while contributing to higher U.S. Treasury yields.
Mortgage rates closely track longer-term Treasury yields rather than the Federal Reserve’s overnight policy rate directly. The 10-year Treasury yield has risen sharply amid inflation concerns and geopolitical tensions, reaching 5.27% Thursday, according to the Associated Press. Reuters reported that mortgage rates have risen more than 1.2 percentage points since the U.S. and Israel initiated military action against Iran earlier this year.
Higher yields and inflation expectations are increasing borrowing costs for consumers while complicating the Federal Reserve’s efforts to bring inflation back toward its 2% target. The result is a renewed squeeze on housing affordability.
For a borrower financing a $400,000 mortgage, the roughly one-percentage-point increase in rates since late February translates into approximately $276 more in monthly principal and interest payments, according to AP’s analysis.
Sam Khater
The higher rates are already weighing on demand. Mortgage applications fell 6% last week, the fourth consecutive weekly decline, while adjustable-rate mortgages accounted for more than 10% of applications as some borrowers seek lower initial payments.
The increase also marks the sixth consecutive week of rising mortgage rates. Freddie Mac’s benchmark is now at its highest level since November 2023.
Freddie Mac Chief Economist Sam Khater said the housing market “continues to be supported by favorable economic conditions” despite the current trajectory of mortgage rates. Higher borrowing costs, inflationary energy pressures and elevated Treasury yields are nevertheless adding to affordability pressures facing homebuyers.
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