Housing Market Faces Headwinds From Iran Conflict, Higher Rates

The U.S. housing market has demonstrated resilience throughout the current year, despite facing a confluence of economic pressures including higher inflation, increased oil prices, rising mortgage rates, and widespread concerns about artificial intelligence's impact on employment. Mortgage rates have remained a critical factor, consistently staying above 6.64% for most of the past week, a level historically associated with market slowdowns. Looking ahead, the market will contend with more challenging year-over-year comparisons as housing activity saw a significant shift in mid-June of the previous year.

In its 2026 forecast, HousingWire had projected mortgage rates to fluctuate between 5.75% and 6.75%, with the 10-year Treasury yield ranging between 3.80% and 4.60%. Both metrics have largely adhered to these predictions, even with the emergence of the Iran conflict as a significant geopolitical variable. The Federal Reserve's stance on oil prices, which tend to influence inflation and monetary policy, remains a key consideration. Escalation of the Iran conflict could amplify the voices of Federal Reserve "hawks," who have been vocal about economic conditions and potential policy adjustments.

Despite recent geopolitical news and hawkish statements from the Federal Reserve, mortgage rates showed stability this week. However, current levels are approaching the upper bounds of the forecast for both bond yields and mortgage rates. The weekend has been marked by a surge of negative headlines, adding to market uncertainty. A crucial factor supporting the housing market this year has been the improvement in mortgage spreads. Had spreads not narrowed, mortgage rates would likely be closer to 8% in 2023 and exceed 7% for much of 2024 and 2025, significantly dampening housing demand.