Mortgage rates are experiencing a jump following Iranian strikes, marking a sharp turn from the decline seen this past week.
Just a week ago the nation was reveling in falling mortgage rates that the Trump administration has made their priority since the housing affordability crisis became a vote turning topic.
Last week mortgage rates dipped below six percent marking the first time in three years. It sent a glimmer of hope that the once stagnant market was set to begin churning again. As reported by NPR, the average 30-year fixed-rate mortgage was at 5.98%, demonstrating a slow return to pre-pandemic conditions.
However, as of Monday, the 30-year fixed-rate mortgage rate has risen to 6.12%.
The role of oil-price inflation and the bond market
Mortgage rates are especially hit by the Iran conflict’s impact on the bond market and 10-year Treasury yield.
The US-Israeli strikes in Iran entered its third day on Monday and oil prices in the open markets jumped alarmingly. Realator.com reported that Brent crude oil prices rose to $79a barrel. The anticipated inflation is inflicting a strong reaction in the bond market, which trickles down into mortgage rates.
To break down this effect further, during times of uncertainty investors move their money from stocks to bonds due to the appeal of its stability and resistance to inflation. Although Iran contributes only 3% of the world’s oil, 20% of shipment passes through the Strait of Hormuz in Iran. If conflict disrupts this trade it can quickly cause inflation and shortages.
As expressed by Joel Berner, senior economist at Realtor.com, “Oil costs make their way into the prices of nearly every physical thing in the economy, so debt market investors are spooked by looming inflation and are demanding higher yields on Treasury bonds.”
The fear of inflation spikes the 10-year treasury yield with the influx of bond purchases, in turn this shift signals an increase in mortgage rates which only recently experienced a dip.
The long-term effect on mortgage rates
Currently it’s too early to definitively infer the impact of the strikes in the Middle East on mortgage rates.
Factors such as duration and severity determine how the 10-year Treasury yields will react to mortgage rates. In addition to duration and severity, how global supply chains will adapt to the shutdown of the Strait of Hormuz is also a major factor in the future of mortgage rates.
Although the effects of the Iranian conflict are already displaying themselves in our economy and subsequently, housing markets, if what President Trump promises about the duration of this war rings true, the impact could be temporary.
