Rising mortgage rates since the start of war in Iran spell trouble for the housing market

Back on Thursday, Feb. 26, Freddie Mac reported that the average 30-year fixed-rate mortgage had fallen ever so slightly to 5.98%.

And that was a milestone: It was the lowest mortgage rates had fallen, and the first time they’d slipped below 6%, in three and a half years.

But the dip in mortgage rates didn’t last a week. On Feb. 28, the war with Iran started.

And the 30-year fixed-rate mortgage has been rising pretty much ever since, topping 6.5% this week and causing yet more trouble for the housing market.

30-year mortgage rates closely track interest rates on 10-year Treasury notes, which in turn, are mainly determined by how much inflation investors think there’s going to be in the economy.

And a month ago, heading into spring, “we were hoping that as inflation decreased, as 10-year interest rates decreased, mortgage rates would get back to a normal range — 5%,” said Susan Wachter at the Wharton School.

But then, the Iran war sent energy prices soaring, pushing the 30-year mortgage well above 6%.

Wachter said the shock is already dinging the spring housing market.

“Mortgage applications for purchasing new homes, that will decline. This will be a donnybrook for the refi market,” Wachter said.

Meanwhile, “if potential homebuyers are putting their dollars into the gas pump, they’re going to have less dollars potentially to spend on buying a house,” said Jeff DerGurahian at loanDepot.

High mortgage rates — well above 6% — will keep the housing market stalled this spring, said Jay Hatfield at Infrastructure Capital Advisors.

“Six is a critical psychological barrier. We do need the 30-year mortgage to be at 6 or below to get a real recovery in housing.”

And it could take more than that, said Richard Green at the USC Lusk Center for Real Estate.

“The underlying fundamentals, they’re not terrible, but they’re not good either,” Green said.

He pointed to economic uncertainty caused by tariffs and war and a weakening job market.

“When you’re buying a house, you’re not just asking yourself, ‘can I make the first payment on it? Am I going to be able to make payments in five years, in ten years?’ And I think people are feeling pretty insecure right now,” Green said.

He said confidence in the economy is key to a strong housing market.