The average rate on a 30-year fixed mortgage fell to 6.48% this week, down from 6.53% the previous week, according to data released Thursday by mortgage buyer Freddie Mac. The decline offers a small reprieve for prospective homebuyers after rates surged last week to their highest level since August 28, when they stood at 6.56%. Despite the weekly drop, rates remain elevated compared to late February, when the 30-year average briefly slipped below 6% for the first time since late 2022.

The current rate sits below where it was a year ago, when the 30-year mortgage averaged 6.85%. Borrowing costs on 15-year fixed-rate mortgages, popular among homeowners refinancing, also eased to 5.79% from 5.87% last week, compared to 5.99% a year earlier. Meanwhile, the yield on the 10-year Treasury note reached 4.47% in midday trading Thursday, up slightly from 4.45% a week ago but significantly higher than the 3.97% recorded in late February before the war with Iran began. The housing market continues to struggle, with mortgage applications falling 2.5% last week for the third consecutive week, according to the Mortgage Bankers Association. On a brighter note for buyers, the median price of homes listed for sale dropped 2.4% in May compared to a year earlier, marking the steepest year-over-year decline in data going back to 2017, according to Realtor.com.

"This conflict is currently the main driver of still-high mortgage rates, as the oil shock ripples inflation fears throughout the global economy," said Joel Berner, a senior economist at Realtor.com. The report notes that rates have been mostly trending higher since the war with Iran began, disrupting tanker passage of crude oil from the Persian Gulf and sending oil prices sharply higher — a key driver of inflation. According to the report, mortgage rates are influenced by several factors, from Federal Reserve policy decisions to bond market investors' expectations for the economy and inflation, and they generally follow the 10-year Treasury yield, which lenders use as a pricing guide for home loans.

Expectations of higher oil prices as the war drags on have kept long-term bond yields elevated, causing mortgage rates to mostly trend upward. When rates decline, they give homebuyers more purchasing power, but the upward trajectory and uncertainty over how much higher they may climb have dragged on the housing market. Sales of previously occupied homes were essentially flat in April after declining in the first three months of the year, extending a nationwide housing slump dating back to 2022. The report notes that recent mortgage applications data show many would-be homebuyers remain on hold, with refinancing applications also softening as homeowners wait for lower rates.

Still, the report highlights that home shoppers undeterred by elevated rates are benefiting from buyer-friendly trends, including more properties for sale than a year ago and falling home listing prices. The data suggest a market in waiting mode: buyers hesitant to commit at current rates, sellers forced to price more competitively, and everyone watching to see whether the conflict in the Middle East will ease or intensify. For now, mortgage rates remain nearly half a percentage point above where they briefly dipped in late February, and there's no clear signal they'll return to that level soon.