The average 30-year mortgage rate has increased for the second week in a row, according to Freddie Mac.
Two weeks ago, the 30-year rate dropped below 6% for the first time in three-and-a-half years. However, it bounced back to 6% last week and has now spiked by 0.11% to 6.11% — and these bumps can largely be attributed to the conflict in Iran.
During my years reporting on daily mortgage rates, I’ve witnessed numerous factors influence home loan rates. The culprits have ranged from the Covid pandemic, to drastic moves from the Federal Reserve, to comments made by President Donald Trump.
The United States’ recent bombings of Iran are a prime example of a geopolitical issue that affects interest rates.
“If we get resolution on [the conflict] sooner rather than later, the effects should be pretty mild, relatively short term in terms of any potential impact on inflation,” Jeff DerGurahian, chief investment officer and head economist for loanDepot, told TheStreet.
“But the longer it goes on… that’s what’s going to have the Fed a little bit more hesitant to cut rates, even though we saw a very weak employment report last week.”
Higher oil prices lead to higher mortgage rates
After the U.S. and Israel bombed Iran on Feb. 28, oil prices started to rise. Brent crude is the main benchmark for oil prices internationally. On Feb. 27, the day before the attacks, Brent crude closed at $72.52 per barrel, per Business Insider.
Prices increased after the bombings, even hitting $119.50 on Monday, March 9.
Brent crude prices have gone back down a bit since this peak, but a recent report from the U.S. Energy Information Administration predicted that the cost would remain over $95 per barrel for at least two more months.
More on mortgages and the housing market:
- Existing-home sales exceed Goldman Sachs’ expectations
- Redfin, Zillow reveal major mortgage rate, housing market change
- What the stock market is saying about the housing market
Oil prices may cause Americans to spend more on a tank of gas or a plane ticket, but how does it impact their rates on mortgage loans?
“Oil is a major component into a lot of different goods that consumers purchase, to the extent that the price of that goes up, it’s going to create inflation,” DerGurahian said. “Inflation is one of the components that bond investors use in their valuation of bonds. So if inflation is higher, they’re going to want a higher yield on their bonds, whether it’s Treasurys or mortgage bonds.”
National 30-year fixed mortgage rates tend to follow the 10-year Treasury yield — if the Treasury yield increases, mortgage rates also rise.
There is a spread between the 10-year Treasury yield and mortgage loan rates. For example, on March 12, the 10-year yield opened at 4.22%, and the average 30-year fixed rate was 6.11%. That’s a spread of 1.89%.
The conflict in Iran also impacts inflation and the Federal Reserve
The 10-year Treasury yield may have the greatest impact on mortgage rates, but inflation and the Federal Reserve also play their roles.
When inflation decreases, interest rates follow suit. If investors expect the Fed to cut the federal funds rate at its next meeting, mortgage rates usually decrease in the weeks leading up to the meeting.
Unfortunately, the instability in the Middle East affects both inflation and the Fed.
The Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) Price Index are two key measures of inflation. The Bureau of Labor Statistics released the February CPI on Wednesday, March 11, which showed that inflation had held steady and aligned with economists’ expectations. The PCE will be released on Friday, March 13.
The main problems with these inflation reports?
The U.S. and Israel attacked Israel on Feb. 28. So the February CPI reflects data from before the Iran conflict began. Friday’s PCE will look at January inflation, so its information will be even further behind.
The Fed considers inflation when deciding whether to slash the fed funds rate, but these two reports don’t provide useful information for next week’s Fed meeting.
“Now, we’ve got to wait and see what’s going to happen in March to really get the next direction on potentially what the Fed is going to do and what’s going to happen with 30-year fixed mortgage rates,” said DerGurahian.
It is all but certain that the Fed will keep its rate unchanged at its March 17-18 meeting.
Previously, many brokerages predicted that the first rate cut of 2026 would occur at the Fed’s June meeting. That is looking less and less likely. Goldman Sachs now predicts that the first federal funds rate drop will occur in September, Reuters reported.
Time will tell if there will be a second rate cut in 2026.
The turmoil in the Middle East is affecting inflation, which will alter the course of the federal funds rate. The likely outcome is that mortgage rates will stay above 6%.
Redfin says Iran conflict isn’t stopping most homebuyers
The current upheaval may be impacting various facets of the U.S. housing market, but it isn’t scaring off as many homebuyers as one might think.
“The impact of the Iran conflict on home- and car-buying plans is similar to the impact of the federal government shutdown in October: Small,” wrote real estate technology company Redfin.
- Redfin commissioned global market research company Ipsos to field a survey, which revealed that only 25% of potential homebuyers are putting off purchasing due to the geopolitical conflict.
- Fifty-six percent of those surveyed reported that the dispute in the Middle East has no effect on their plans to buy a home.
- These percentages are similar to an October Redfin survey that revealed the government shutdown left many homebuyers undeterred.
- Other economic and political issues, including tariffs and concerns about job security, caused would-be buyers to put off purchasing a home in 2025 than the present-day problems in Iran.
Source: Redfin
Related: Zillow predicts mortgage rate, housing market change
