How will the war in Iran impact the US housing market?
After hitting three-year lows last week, mortgage rates jumped in the war’s first few days — but the rise could be temporary if the conflict doesn’t last long.
Key points:
- Mortgage rates have moved up in the days after the war started, with the 30-year fixed-rate coming in at 6.13% on March 3 after sitting below 6% last week.
- Rates could climb higher over inflation fears — but they could also drop if rising oil prices cause the economy to slow.
- The economic shocks triggered by the war offer another example of why timing the housing market is a difficult task — even heading into what’s traditionally the industry’s busiest time of year.
The United States' war with Iran is introducing new uncertainty to the real estate market as the spring homebuying season approaches.
With oil prices rising and global trade routes disrupted, fears of inflation are already impacting mortgage rates. The 30-year fixed-rate mortgage rose slightly on March 3 to 6.13% following a bigger jump on March 2 from 5.99% to 6.12%, according to Mortgage News Daily. These increases occurred just days after rates hit their lowest levels since September 2022 — levels reached before the war began.
Prior to the bombings in the Middle East, the U.S. housing market was shaping up for a solid spring buying season, said Joel Berner, senior economist at Realtor.com. Price growth had slowed, inventory was up and mortgage rates were falling, leading to growing optimism among real estate agents.
"After this weekend, it's uncertainty," Berner said in an email to Real Estate News when asked about the upcoming season. "Higher rates bring the lock-in effect back into play, which combines with general anxiety about the future to prevent would-be sellers from listing their homes."
While spring is typically the best time of year to sell, "uncertainty in the economy at large and in the housing market specifically may severely limit this home selling season from being what it could have been," Berner said.
A cloudy path ahead
Like many aspects of today's economy, there are competing variables that make it tough to predict what will ultimately happen with mortgage rates.
While an oil price spike and trade disruption could trigger the fear of inflation, these concerns could also slow the economy enough to lower rates. However, a slower economy may also bring about a worsening job market, which would sap homebuying demand.
Given the volatility involved in the war's early days, Bright MLS Chief Economist Lisa Sturtevant outlined two possible paths forward for the housing market.
"If the conflict is limited in duration and scope, higher energy prices, bond yields and mortgage rates could all be temporary," Sturtevant said. "The beginning of the spring homebuying season could be delayed as buyers wait for mortgage rates to settle back down but sales would likely rebound, with prices remaining solid."
But if the war were to turn into a prolonged conflict, the major energy disruptions would lead to higher inflation and energy prices — and that would keep mortgage rates higher for longer.
"Consumers who are already feeling economic uncertainty would be even more cautious. Home sales could be slower for longer as some home buyers exit the market and other buyers delay," Sturtevant said.
Another strike against timing the market
It's also possible that global uncertainty could drive investors to seek safety in financial markets, which could lower 10-year U.S. Treasury bond rates and soften mortgage rates, according to Mike Simonsen, chief economist at Compass.
This latest international conflict is just one more example of how trying to time the market is a fool's errand, Simonsen said.
"All we can do is evaluate the opportunity in front of us. Do we love the home? Can we afford the home? If so, that's a good signal to buy the home rather than waiting for some condition that might happen later," Simonsen said. "If we don't love it or can't afford it, don't buy it because you think you have to."
Another factor to keep in mind: While geopolitical shocks tend to impact mortgage rates and consumer sentiment, they have less influence on underlying housing demand, noted Sam Williamson, a senior economist at First American.
"Inventory levels have improved compared to last year and, while affordability remains stretched, conditions are modestly better than a year ago," Williamson said.
"Even amid heightened geopolitical uncertainty, these underlying trends continue to support a cautiously optimistic outlook for the spring housing season," Williamson added.