Perhaps the reopening of the Strait of Hormuz is the ticket to lower loan rates.
After all, that’s what caused them to jump nearly 75 points since the end of February.
There was really no other explanation for the sudden rise in home loan rates over the past few months.
So if we can unwind that move in a normal way with a water key, mortgage rates should reasonably return to those levels.
If that is indeed the case, we could end up back to less than 6% 30 years fixed again.
Low Oil Prices Give Mortgage Rates a Push Down
Thanks to the accord in the Middle East, oil prices have now returned to pre-war levels.
Brent crude futures fell below $74 a barrel, the lowest levels since the US and Israel launched airstrikes on Iran in late February.
A similar decline was seen in WTI oil futures, although that didn’t stop President Trump from complaining on social media that oil companies didn’t cut gas prices fast enough.
And that actually brings up a good point. It will take time for the many months of disruption to work itself out.
The Strait of Hormuz was effectively closed for about 3 and ½ months during the conflict.
There is a lot of backlog and planning stuff that needs to be worked out to get us back on track.
Even then, there may be a premium baked into oil prices and mortgage rates to limit the risk of a new shutdown in the future.
In other words, while it is good news that things are normalizing and oil prices are down, mortgage rates may not return to the low levels seen at the end of February.
As it stands, the 30-year is priced at around 6.50% due to today’s decline, but remains about 50 basis points (bps) above the pre-war low.
Is Oil the Only Major Factor in Mortgage Rates?
Although I have argued that the rise in mortgage rates this year has largely been boiled down to one thing, the war, things are always changing.
Mortgage rates do not exist in a vacuum and can be affected by many, ever-changing factors.
For example, while the war was going on, there was growing concern that the technology industry was overheating.
We’ve seen stocks rise despite the war and $100 per barrel oil, seemingly ignoring geopolitics in favor of big returns.
This has led many to raise the alarm that things are becoming a bubble again, as prices defy the dot com boom and bust era.
There are some similarities between now and the late 1990s. Meanwhile, the Fed began a hiking campaign in mid-1999 to cool down.
They raised the fed funds rate six times, including a 50 basis point increase in May 2000 after the stock market hit a record high.
Maybe that will happen again in this cycle, or as it stands, there is only one 25-bp increase on the table for the year.
Still, that puts higher pressure on mortgage rates than the energy crisis is apparently self-correcting.
So when we put it together, we have some risk because of high-tech measurement, and some risk related to geopolitics.
That would make it difficult for the 30-year fixed rate to return below 6% again anytime soon.
Even if the peace deal holds and we can at least leave Iran, that would get the loan rates to the right of 6.50% again.
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Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 20 years ago to help prospective (and current) home buyers better navigate the mortgage process. Follow me on X for the hottest.
