Interest rate outlook and inflation fears are keeping prospects of a spring housing recovery on ice
President Trump signaled on Wednesday that the US-Israel-Iran conflict could be over within weeks, but the war still faces an uncertain future with Iran ramping up threats to attack American tech companies and giving no indication that the Strait of Hormuz will reopen for shipping soon.
That means the outlook for the US economy remains in limbo amid growing fears of a sharp inflation uptick as oil prices soar and bond market volatility continues.
The mortgage market, too, has taken a hit in recent weeks because of upward pressure on Treasury yields. The average 30-year fixed mortgage rate shot above 6.5% last week, according to the latest Mortgage Bankers Association (MBA) data, sending mortgage applications tumbling by more than 10% as borrowers on both the purchase and refinance sides step to the sidelines.
‘This spring season has almost no chance of improving’
The national housing market was already facing huge challenges before the war erupted at the end of February, with thousands of homes sitting on the market and sellers far outnumbering buyers.
And while President Trump’s announcement of a 9 p.m. ET address to the nation this evening stirred hopes that an end to the war could be in sight, few housing market watchers expect the outlook to brighten dramatically even if hostilities cease.
Glen Weinberg of Fairview Commercial Lending told Mortgage Professional America he didn’t see any chance of a strong spring market, leaving the mortgage industry with no choice but to pin its hopes on a recovery by the fall.
“I don’t think prices are going to have a huge reset in the market, but for mortgage brokers and realtors the spring season will still be brutal as transaction volumes will remain at historic lows,” he said.
“At this point in the spring season even if there is a quick resolution to the war in the Middle East, it will take time for the good news to flow through the economy. Unfortunately, this spring season has almost no chance of improving, but at least prices should stay about where they are and we could have a fall surprise if interest rates make a U-turn.”
On Wednesday morning, stocks inched higher as markets responded positively to rumors of an imminent end to the war, but 10-year Treasury yields – which strongly influence the 30-year fixed mortgage rate – continued to wobble.
Still, those yields have moved lower since last week, sliding from just above 4.48% on Friday to 4.31% at the time of writing.
If that trend continues, it would likely mean some relief for borrowers next week and end, at least for now, a weeks-long jump in mortgage rates.
Powell relaxed on rate hike chances despite inflation fears (for now)
The Iran war has sharply tapped the brakes on a hoped-for housing recovery in the opening months of this year. At the end of February, the MBA reported that mortgage activity increased thanks to a drop in the average 30-year fixed rate to its lowest level since September 2022.
But that proved a short-lived phenomenon. The Iran conflict has sparked one of the deepest global oil crises in decades, hitting US consumers at the pump and strengthening speculation that the Federal Reserve could be forced to hike interest rates if inflation soars.
Experts have sounded the alarm on the likely impact of a protracted conflict on US consumer prices – but Jerome Powell, the current Fed chair, this week appeared to pour cold water on chances of imminent rate hikes.
While Fed decisions don’t determine the direction of mortgage rates, they can be influential in impacting whether they rise or fall – mainly because bond market pricing depends in part on expectations for the central bank’s approach in the months ahead.
However, Powell didn’t rule out the prospect of rate hikes in the longer term if the war rumbles on. “Inflation expectations do appear to be well anchored beyond the short term, but nonetheless, it’s something we will eventually maybe face: the question of what to do here,” he said in an appearance at Harvard University.
“We’re not really facing it yet, because we don’t know what the economic effects will be, but we’ll certainly be mindful of that broader context when we make that decision.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
