I keep warning folks that mortgage rates are going higher, possibly back to the 7% range.
And the main reason is because the war in the Middle East is dragging out longer than anticipated.
That could lead to even higher oil prices, which already spiked gas prices and are now affecting input costs on virtually all products/services.
But now we’ve got another issue; hot labor data is also becoming a thing again, with the latest ADP jobs report coming in above forecast.
And the BLS jobs report for May is out this Friday, which could lead to even more upward pressure for mortgage rates.
One-Two Punch for Mortgage Rates
It seems anytime mortgage rates get a win, they face a setback. They were winning coming into 2026 and hit the lowest levels since mid-2022 at the end of February.
Then just like that, the conflict in the Middle East sent 30-year fixed rates back toward 6.50% and even higher.
Not only was this bad news for those looking to refinance a mortgage, it also came during prime home buying season.
So far this year, mortgage rates have peaked around 6.75% thanks to surging oil prices and fears of another wave of inflation.
But they settled down some in the past couple weeks on hopes of some sort of resolution.
Now there are renewed fears they could ramp up again due to new tensions in the fight between Iran and the U.S. and its allies.
Adding to that is labor data that has been warming up with the weather.
We’ve had a few jobs beats lately, including today’s ADP jobs report, which was the best since the beginning of 2025.
That is piling even more pressure on bond yields, which drive mortgage rates.
This Friday we get the even more important BLS jobs report for the month of May. If it too comes in hot, mortgage rates could retest recent highs.
Peace in the Middle East Matters Most for Mortgage Rates
Despite mortgage rates now facing two separate issues, a surprisingly hot economy and an unexpected war, the latter being resolved could be enough to right the ship.
I’ve long said the conflict was a very acute and direct issue with regard to mortgage rates.
They are a lot higher tody because of the war, not for any other reason.
Yes, labor has been hotter-than-expected lately, but not in a way that necessarily puts mortgage rates at major risk.
Simply put, the labor market has shown some resilience and isn’t contributing to downward pressure on interest rates due to weakness.
So that leaves the war once again as the biggest driver. That’s where your focus should be when it comes to mortgage rates.
If peace negotiators can make some headway there, mortgage rates might be able to get back closer to 6% instead of above 6.50%.
And it’s pretty much known at this point that home buyer activity increases when rates are on the lower side of 6.50%.
But assuming they move even higher due to a prolonged conflict, exacerbated by more hot jobs data, we could see home sales take yet another hit.
There have already been warnings of $150 per barrel oil, which if true, could send mortgage rates back to 7% or even higher.
(photo: Marcin Wichary)
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