Oil prices and mortgage rates: What homebuyers should know

Potential homebuyers who’ve been looking forward to the spring selling season may be watching with trepidation as interest rates on mortgages tick higher.

As of Thursday, the average rate for a 30-year fixed-rate mortgage with a conforming loan balance — that is, $832,750 or less — was 6.35%, according to Mortgage News Daily. About two weeks earlier, ahead of the U.S. and Israel launching military strikes against Iran, it was 5.99%.

“High oil prices are not good for mortgage rates,” said Lawrence Yun, chief economist for the National Association of Realtors.

However, a year ago, the average rate was higher: 6.82%. And it was about 8% in October 2023. There are also other indications that affordability has improved, albeit slowly.

Nevertheless, for buyers concerned that oil-driven rates could fall after they’ve committed to a purchase and picked a mortgage lender, there may be ways to mitigate that, experts say.

The jump in mortgage rates over the last two weeks is largely attributed to the specter of inflation, which appeared due to sudden constraints on the world’s oil flow after the war broke out. With part of the oil supply not getting through the Strait of Hormuz, a key maritime channel in the Persian Gulf, prices spiked — and with them, inflation fears.

Brent crude, a global oil price benchmark, traded as high as $119.50 per barrel on Monday, up from about $70 before the U.S.-Israeli military strikes. It was trading around $100 per barrel as of Friday morning.

“The Iran conflict — that’s a major headwind” for mortgage rates, said Stephen Rinaldi, president and founder of the Rinaldi Group, a mortgage broker based near Philadelphia. “We don’t know how it’s going to shake out. Oil drives inflation, and inflation drives rates.”