The conflict that began in Iran at the end of February has had consequences far beyond the Middle East. American consumers are absorbing the cost of war in their everyday lives, from gas stations to grocery stores. Especially, for many potential home buyers, the impact on mortgage rates has been particularly painful with immediate consequences.
Just two days before the strikes began, Freddie Mac reported the national average rate on a 30-year-fixed-rate mortgage had dipped to 5.98%, its lowest point in three and a half years. Unfortunately, that milestone lasted less than 72 hours. Almost immediately after the war with Iran started, the 30-year fixed-rate mortgage started trending up. As of April 2nd, the rate had risen to 6.46%, almost half a percentage point higher.
How does the war in Iran affect mortgage rates in the United States?
Iran’s positioning in the energy infrastructure and oil prices is key to understanding this dynamic. After the news of the war in Iran broke, the price of crude oil increased significantly. Rising energy prices have fed inflation fears, which cause investors to sell Treasury bonds. When bond demand falls, yields rise. The 30-year mortgage rate tracks the 10-year U.S. Treasury bond yield, which is why mortgage rates followed suit as the 10-year Treasury yield went up.
What does the rate increase mean for Virginia’s housing market?
For buyers, the dollar figures are concrete and consequential. For a $410,000 median-priced home purchased with a 10% down payment, a buyer who locked a rate one month ago pays approximately $100 less per month than a buyer locking today. Even so, mortgage rates remain meaningfully lower compared to a year ago, translating into additional purchasing power for the median household compared to last year.
Along with rising inventory levels, continued buyer interest, and softening price growth in Virginia, the continued downward trend in mortgage rates was signaling towards a busier spring market at the start of this year. The Iran war has transformed what was shaping up to be the best homebuying environment in years into a market defined once again by uncertainty and elevated costs. Ultimately, how high mortgage rates climb will play a significant role in determining whether the spring market maintains its pace or slows.
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