Mortgage Rates Remain Elevated as Cooler Inflation Meets Renewed Oil Risks
In short: Mortgage rates are caught between cooler inflation data and renewed energy risks. Softer June inflation reduced the likelihood of a near-term Federal Reserve rate increase, but higher oil prices are keeping pressure on the inflation outlook and borrowing costs.
Mortgage rates remain elevated as inflation relief met renewed energy risks
Two opposing forces shaped the week for mortgage rates. June CPI and PPI both came in substantially cooler than expected, taking pressure off the immediate case for another Federal Reserve rate hike — market expectations reset from a near coin toss on an increase to consensus for no change.
That relief was offset by renewed geopolitical tensions in the Middle East earlier in the week, which raised oil prices and reintroduced upside risk to July inflation. Zillow’s forecast is now for rates to ease only gradually, drifting to roughly 6.4% by the end of 2026.
What’s the impact on housing?
June’s housing activity was surprisingly upbeat, reversing May’s decline. Zillow’s June market report showed home sales jumped 5.9% year over year, new listings grew 3%, and the typical monthly mortgage payment was 2.5% below year-ago levels — a real, if modest, affordability tailwind for buyers.
That tailwind gets harder to lean on in the second half of the year. If rates end 2026 near 6.4%, that would be slightly higher than the range buyers saw in fall and winter 2025 — meaning affordability could shift from a tailwind relative to last year to more of a headwind, especially when comparing listings and sales.
