Mortgage rates increased fifteen basis points last week according to the Freddie Mac Primary Mortgage Market Survey as of May 21st. “Higher Treasury yields continued to push mortgage rates higher last week, weighing on affordability and overall application activity,” MBA president and CEO Bob Broeksmit said in a statement. Bond yields have spiked dramatically in recent days as investors grow more worried about prolonged inflation and the ongoing conflict in Iran. Investors now see little chance that the Federal Reserve will cut benchmark interest rates by year-end, and odds of a potential rate hike in the coming months are rising. While the Fed doesn’t directly control mortgage rates, they are influenced by expectations about what the central bank will do in the future.
Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending May 15h. “Ongoing concerns around inflation from higher fuel costs, combined with rising concerns over global public debt, pushed Treasury yields higher in the U.S. and abroad last week. This resulted in higher mortgage rates across the board, with the 30-year fixed rate increasing to its highest level in seven weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall applications were down to the lowest level in five weeks as purchase borrowers pulled back across conventional and government loan types. Added Kan, “Almost 10 percent of applications were for ARM loans, the highest share since October 2025, as borrowers sought loan types with lower rates, given that the ARM rate was 80 basis points below the 30-year fixed rate.”
According to minutes released Wednesday, most Federal Reserve officials at their most recent meeting anticipated that interest rate increases would be necessary if the Iran war continued to aggravate inflation. Though the rate-setting Federal Open Market Committee again voted to keep its benchmark rate targeted between 3.5%-3.75%, the meeting featured four “no” votes, the most since 1992, and an apparently heightened level of disagreement about where policy should go. At issue was the impact that the Iran war would have on prices and how that would work its way into monetary policy. Officials differed on how long the war’s impact would last and whether the post-meeting statement should continue to reflect a bias toward cutting rates as the more likely next move. While several meeting participants said it would be appropriate to lower when it’s clear that inflation is moving back to the Fed’s 2% target or when the labor market weakens, “A majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.”
The number of Americans filing claims for unemployment benefits fell last week, pointing to labor market resilience and giving the Federal Reserve room to focus on surging inflation from the war with Iran. Initial claims for state unemployment benefits slipped 3,000 to a seasonally adjusted 209,000 for the week ended May 16, the Labor Department said on Thursday. There are no signs yet that employers are responding to rising costs by reducing headcount. The nearly three-month-long U.S.-Israeli conflict with Iran has disrupted shipping in the Strait of Hormuz, boosting energy prices, as well as straining global supply chains and causing shortages of a wide range of goods, including fertilizers, aluminum and consumer products. “We still can’t rule out some spillover effects from the war and the spike in oil prices on to the labor market, which we have always expected would come with a lag,” said Matthew Martin, a senior U.S. economist at Oxford Economics. “But for now, we think the labor market is showing enough stability to allow the Fed to feel comfortable keeping policy steady.”
