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Key Takeaways
- The U.S. strikes on Iran began Feb. 28 and interest rates followed an upward trajectory in the aftermath.
- The longer the war, the more the inflation rate is anticipated to grow.
- Oil prices surpassing $100 per barrel for the first time since 2022 signal a potentially prolonged period of elevated mortgage rates.
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When geopolitical tensions erupt and escalate into attacks on another country or full-scale war, financial markets react.
During unsettling times with heightened uncertainty, investors seek stability and safety for their funds. Like other conflicts before it, the current war with Iran increases mortgage rate volatility, and that volatility could lead to inflationary growth.
The war with Iran and mortgage rate impacts
The start of 2026 came with improved homebuyer affordability as interest rates fell below 6% for the first time since 2022.
Freddie Mac’s weekly report showed the average 30-year fixed mortgage rate dipped to 5.98% on Feb. 26. The U.S. then attacked Iran on Feb. 28, and interest rates gradually rose in the aftermath.
The early-year strides in affordability were due largely in part to the tightening of mortgage-backed security (MBS) spreads, according to Erica Adelberg, chief MBS strategist at Bloomberg Intelligence. That tightening quelled market volatility and added momentum to the Federal Reserve potentially easing its monetary policies. The war with Iran reverses that course.
“Both volatility and rates have started to climb again in response to the U.S.-Israeli strikes on Iran, which has triggered more uncertainty around the direction of inflation, the economy, and Fed policy,” Adelberg said to The Mortgage Reports. “Higher volatility has pushed MBS current coupon spreads back to the widest since December, more than fully offsetting January’s spread tightening in response to the Trump administration’s directive for the GSEs to add $200 billion of MBS to their retained portfolios.”
The conflict’s duration and severity will determine how long interest rates are impacted. With oil as a central tenet of this war, it has the potential to raise supply-chain costs or cause delays in the chain altogether. Oil prices, in particular, will be a something to watch closely.
“No current economic data really matters as long as this Iranian conflict isn’t resolved,” Logan Mohtashami, lead analyst at HousingWire, wrote in an article on Mar. 7. “Oil prices can rise much higher. which means higher gas prices, jet fuel, and diesel prices, which can increase food prices. So, even though we have a lot of economic data that will be released this week, the Iran conflict is more important.”
Rising energy prices feed inflation metrics and factor into interest rate growth. The price of crude oil opened market trading at $71.23 per barrel on March 2 and surged to an opening price of $115.53 a week later on March 9. It marked the first time passing $100 since 2022, shortly after Russia invaded Ukraine. The daily average 30-year fixed mortgage rate concurrently grew from 6.04% to 6.15% in that same timeframe.
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An anticipated rise in the pace of inflation tempers expectations around the likelihood of Federal Reserve rate cuts this year and increases the probability that the central bank could even raise the federal funds rate range in response. While the Fed doesn’t technically set mortgage rates themselves, rates tend to intrinsically follow its actions, rising alongside policy tightening and falling with loosening.
Lending conditions can change, sometimes rapidly, and shift the mortgage market accordingly. If homebuying affordability improves, either through accelerating the MBS purchase directive for the GSEs or new housing bills getting signed into law, it could stoke demand. Getting pre-qualified and pre-approved for a home loan can give you the ability to be nimble and move quicker than competitor house hunters if rates were to suddenly drop.
Note: This article explicitly discusses how war and the current conflict with Iran affects mortgage rates. The humanitarian and environmental devastation of war take precedence over economic impacts. The first week (Feb. 28 – Mar. 6) of attacks on Iran killed 1,332 people, according to the Iranian Red Crescent Society — an organization similar to the Red Cross.
The bottom line
Even in more tranquil times, successfully navigating lending and homebuying can prove difficult. With many factors influencing mortgage rates, they’re very hard to predict — more so during major geopolitical conflicts — which can make timing the market a total crapshoot.
Many industry experts will advise you that the best time to buy a house is when you can afford it. So, if you’re prepared and ready to buy a home, do the due diligence of negotiating your interest rate and see if you can qualify for financial assistance. Then, reach out to a local lender and get moving.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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