US Housing Market Faces Spring Headwinds as Iran Conflict Drives Rates Higher
Mortgage rates climb to three-month high as geopolitical shock adds inflation pressure to borrowing costs
The US housing market is confronting renewed pressure as the escalating conflict in the Middle East pushes mortgage rates to their highest level in three months, threatening to derail the crucial spring homebuying season.
Mortgage rates have climbed to 6.22% for the week ending March 19, up from 6.11% the previous week, representing the highest level since late December. The surge comes as oil markets grapple with the impact of ongoing military operations in Iran, which have disrupted global energy supplies and reignited inflation concerns.
The conflict, which began on February 28 with joint US and Israeli strikes dubbed "Operation Epic Fury," has created significant instability in oil markets. Brent crude has surged 50% over the past month to approximately $107 per barrel, while WTI has climbed 43% to about $95. The International Energy Agency estimates that global oil supply has plunged by 8 million barrels per day in March due to production curtailments in the Middle East, with the Strait of Hormuz—a critical chokepoint handling roughly one-fifth of global oil and liquefied natural gas supplies—facing severe disruptions.
Rising energy prices have direct implications for mortgage rates, as they often trigger higher inflation expectations and upward pressure on bond yields. Lenders typically pass these increased borrowing costs to consumers in the form of higher mortgage rates. The effect is already visible: mortgage applications fell nearly 11% from the previous week, while new single-family home sales dropped 17.6% in January to reach their lowest level since October 2022.
Housing-related equities are reflecting the strain. D.R. Horton (DHI), America's largest homebuilder, has declined 14.3% over the past 30 days. Rocket Companies (RKT), the digital mortgage lender, has fallen approximately 21% over the past month and is down 25.8% year-to-date. Zillow (Z), while showing some recent volatility, has declined 33.6% over the past year.
The timing is particularly challenging for the housing sector, which typically experiences heightened activity during spring months. The combination of elevated borrowing costs and economic uncertainty could dampen buyer demand just as the market enters its peak season. Some analysts note that while affordability pressures have eased compared to last year, the sudden spike in rates driven by geopolitical events creates additional headwinds for an already delicate market.
Market participants are watching closely for signals from Federal Reserve officials regarding how long these elevated rates might persist. While forecasts suggest mortgage rates could fluctuate between 5.7% and 6.5% through much of 2026, the ongoing situation in the Middle East introduces significant uncertainty to those projections.