Mortgage Rates Surge to 6.38% as Iran War Disrupts Housing Market

The average rate on a 30-year fixed mortgage climbed to 6.38 percent this week, marking the fourth consecutive increase since the outbreak of war between the United States and Iran and dealing another blow to a housing market that was already struggling with affordability challenges.

The rate, reported by Freddie Mac on Thursday, is up from 5.87 percent at the end of February, just before hostilities began. The increase translates to roughly $200 more per month on a typical $400,000 mortgage, further stretching the budgets of prospective homebuyers who have been waiting for rates to decline from the elevated levels that have persisted since the Federal Reserve began raising interest rates in 2022.

The surge in mortgage rates is a direct consequence of the war's effect on financial markets. The conflict has sent oil prices soaring above $110 per barrel, raising fears of a sustained period of elevated inflation that would force the Federal Reserve to delay or reverse the interest rate cuts that markets had been expecting. Treasury yields, which serve as the benchmark for mortgage rates, have climbed sharply as investors price in the possibility that the Fed will need to keep rates higher for longer than previously anticipated.

The housing market impact is already visible. The Mortgage Bankers Association reported that purchase mortgage applications fell 12 percent last week compared to the prior week, the steepest single-week decline since November 2022. Refinancing applications, which had been rising as rates drifted lower earlier in the year, have collapsed, falling 28 percent over the same period.

Real estate agents across the country described a sudden shift in buyer sentiment. In markets that had been showing signs of recovery, including parts of Texas, Florida, and the Southeast, open house attendance has dropped noticeably in the past two weeks. Sellers who had listed homes in anticipation of a spring buying season boosted by lower rates are finding fewer qualified buyers and are beginning to cut asking prices.

The rate increase compounds an existing affordability crisis. The National Association of Realtors calculates that the median-priced existing home in the United States now requires a household income of approximately $115,000 to afford, assuming a 20 percent down payment and the current mortgage rate. That figure exceeds the median household income in every state except a handful of high-income metropolitan areas.

Economists said the war's effect on housing could prove long-lasting even if the conflict is resolved relatively quickly. Oil price shocks tend to feed through to broader inflation with a lag of several months, meaning that even a rapid end to hostilities would not immediately relieve the inflationary pressure that is pushing rates higher. The Federal Reserve, which had been signaling the possibility of rate cuts later this year, has shifted to a more cautious posture, with Chair Jerome Powell saying last week that the economic outlook has become significantly more uncertain.

Homebuilders are also feeling the effects. Shares of major publicly traded homebuilders, including D.R. Horton, Lennar, and PulteGroup, have fallen between 10 and 15 percent since the war began. The companies had been counting on a normalization of rates to drive demand for new construction, and the reversal has prompted several to announce reductions in their planned building schedules for the remainder of the year.

The National Association of Home Builders said builder confidence, as measured by its monthly sentiment index, dropped eight points in March to its lowest level since January 2024. The organization warned that a prolonged period of elevated rates would slow new housing construction at a time when the country faces a shortage of approximately 4 million homes.