Over the past month, the U.S. housing market has gone from a brief period of relief to a renewed squeeze, and the culprit is not just the usual suspects of supply shortages and high prices. The conflict drawing in Iran, Israel and the United States has quietly pushed up mortgage rates, reminding home buyers and policymakers that global events can still shape the cost of a monthly payment. Mortgage rates dipped below 6% for the first time in more than three years in late February, only to start climbing again as the war in the Middle East sent oil prices and inflation fears higher.
The average 30-year fixed mortgage rate now stands at about 6.22%, up from 6.11% the week before and at its highest level since early December. A few weeks earlier, the rate had briefly fallen to about 5.98%, a psychological threshold many economists hoped would spark more home buying and selling ahead of the spring homebuying season. That optimism has since cooled, as the market absorbs the impact of an evolving conflict that has disrupted energy supplies and jolted global financial markets.
Mortgage rates in the United States move closely with the 10-year U.S. Treasury yield, which is widely seen as a barometer of how investors feel about future inflation and economic growth. Before the war intensified, the 10-year yield hovered near about 3.96%, but it has since climbed to roughly 4.28%, touching its highest level in nearly two months at times. That move reflects the fear that higher oil prices, driven by reduced Iranian and regional exports, could stoke inflation and eat into the purchasing power of consumers and home buyers.
Those higher rates are starting to show up in real-world behavior. According to a recent report from the Mortgage Bankers Association, mortgage applications fell about 10% in the latest week, even as the spring homebuying season approaches. The trade group’s chief executive, Bob Broeksmit, noted that it remains uncertain whether the upward pressure on rates, tied to Middle East tensions, will blunt demand that otherwise could have been strong. The dip in applications suggests that some buyers may be pausing, recalculating, or deciding that the incremental cost of a higher rate is enough to rethink timing or price expectations.
Before the war, many investors had been betting that the Federal Reserve would resume cutting interest rates later in the year, which would typically help bring mortgage rates down as well. The prospect of an energy shock tied to the Iran conflict has made that path more uncertain. During a recent meeting, Fed Chair Jerome Powell said the central bank worries a great deal about bringing inflation back down to its 2% target and that the latest shock complicates the outlook. He pointed to the combination of the tariff shock, the pandemic, and now an energy shock of “some size and duration,” warning that such events can destabilize inflation expectations if they drag on.
Inflation in the United States has cooled from its peak in 2022, yet it still sits above the Fed’s goal. The Personal Consumption Expenditures price index, the central bank’s preferred gauge, rose 2.8% in January, underscoring why the Fed is reluctant to signal a series of rate cuts. With energy-related items contributing to upward pressure on prices, the Fed may feel it has less room to be aggressive with rate declines, further limiting the scope for mortgage-rate relief.
How this plays out for home buyers will depend on how long the conflict and the energy shock persist. Economists note that while a limited or short-lived flare-up may only nudge rates higher, a prolonged escalation could keep borrowing costs elevated and dampen both demand and home-builder activity. Some analysts argue that the affordability gains seen over the past year, when mortgage rates slid from much higher levels, still leave many buyers in a better position than they were during the worst of the 2022-2023 mortgage surge, even if the latest increase stings.
For the average household, a rise from just under 6% to around 6.2% on a 30-year mortgage does not always feel dramatic, but it can mean hundreds of extra dollars per year in payments on a typical loan. That extra cost tends to weigh most on first-time buyers and those trading up, who are already grappling with high home prices and limited inventory. The irony is that the war in the Middle East arrives just as buyers were beginning to feel a bit of breathing room, turning a fragile recovery into yet another test of patience and affordability.
Federal officials and market watchers are now watching two stories at once: the trajectory of the conflict itself and the reaction of inflation expectations, bond markets and homebuying behavior. If oil prices stabilize and the war does not spread further, there is room for mortgage rates to ease again over time. If instead the conflict drags on and inflation expectations drift upward, the Fed may hold rates higher and mortgage costs may stay elevated, prolonging the squeeze on American home-buying power.
