June Mortgage Outlook: Rates Could Climb as Hopes Fade for a Fed Cut

Mortgage rates are likely to move up in June, though the increase might not be as severe as what customers are seeing at the gas station.

Mortgage rates have risen since the U.S. war with Iran began, as gas prices (and subsequently, inflation) jumped. Despite persistent promises from President Trump of a quick end to the conflict, no peace agreement has been reached yet. So long as the war continues with no clear end in sight, mortgage rates will probably remain elevated.

How the Fed comes into play

Markets are currently projecting that the Federal Reserve will vote to leave overnight borrowing rates unchanged at its June 16-17 meeting. This particular meeting also has a key economic forecast on the agenda that could influence mortgage rates.

The Federal Reserve typically releases a summary of economic projections four times a year. The report conveys central bankers' predictions for the economy across a range of factors, including inflation, GDP growth and employment. The report also gives insights into how central bankers might set the federal funds rate in the months ahead, along with perceived economic risks.

It's possible that new chair Kevin Warsh will change the Fed's approach to communications. Warsh believes that central bankers have been too transparent in telegraphing decisions ahead of meetings, and has said that he'd like to reform the Fed as a more tight-lipped institution.

If the Fed does make the June summary of economic projection public, it will be the first report since the war in Iran really began to have a measurable impact on the economy, making it especially informative for rate-watchers.

The last report was released in mid-March; the war hadn't lasted three weeks yet, and there was still hope that it could be a short-lived conflict.

The March projection outlined central bankers' expectations that inflation was easing, and unemployment appeared to be steady. The economic signals indicated in the March summary could have created a pathway for the Fed to lower rates through 2027.

Now that we know the Iran war wasn't just a blip, but in fact a trigger for a global energy crisis, there's a good chance that central bankers' projections will have evolved.

If the report indicates that central bankers foresee worsening inflation and rising interest rates, lenders could respond by raising mortgage rates throughout the summer.

The Fed doesn't directly set mortgage rates, but it does set monetary policy by controlling the federal funds rate. This is the rate that lenders pay to borrow from one another, which is how they fund mortgages. When lenders think the federal funds rate is going to change, they'll often preemptively move mortgage rates in the same direction.

Why mortgage rates aren't even higher right now

Rising energy prices make it more costly to manufacture and transport goods, and the war with Iran — in an important region for oil shipping and production — has stoked inflation fears among investors.

High fuel costs could have pushed mortgage rates up even further by now, but rates have been cushioned by Fannie Mae and Freddie Mac. The government-sponsored entities have been buying up billions of dollars' worth of mortgage-backed securities.

These mortgage bonds are packages of home loans that are purchased by investors. When demand for these bonds goes up, so do their prices, which typically pushes mortgage rates down.

According to Realtor.com, Fannie Mae's mortgage bond portfolio has more than doubled in the past year at the direction of President Trump.

"At Fannie Mae, our mission guides how we operate, which is especially important today as the macroeconomic environment is adding uncertainty to an already challenging housing market," said Peter Akwaboah, acting CEO and chief operating officer at Fannie Mae, in Q1 2026 earnings-call remarks.

"We remain focused on providing uninterrupted liquidity in all economic cycles to support stability and affordability to the U.S. housing market," Akwaboah said.

While Fannie and Freddie continue on this buying path, rates should stay below their worst-case-scenario thresholds. Still, security purchases can only do so much, and it likely won't be enough to stop rates from rising altogether.

What other forecasters are predicting

Fannie Mae's latest housing forecast (released on May 12) shows rates moving above its April prediction. The previous forecast had rates falling in Q3 and Q4, ending the year with the 30-year rate at an average of 6.1%. The May forecast revises this projection, with rates remaining at 6.3% until the second quarter of 2027.

The Mortgage Bankers Association projects slightly rising rates through the rest of this year. MBA's latest projections show 30-year mortgage rates ending the year at an average of 6.5%.

What happened in May

Last month, we predicted that rates would remain pretty stable in May. Instead, rates increased — the average was 6.35%, compared to April's 6.16%. To put that in context: If you got a $300,000 mortgage at May's average 30-year rate, you'd be paying about $35 more per month than if you'd gotten your loan in April. Not necessarily a terrible difference, but when we're talking about such long-term loans, it adds up.

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Taylor Getler writes for NerdWallet. Email: [email protected].

The article June Mortgage Outlook: Rates Could Climb as Hopes Fade for a Fed Cut originally appeared on NerdWallet.