Iran conflict's impact on spring homebuying season

The early reaction to the Iran conflict, with mortgage rates rising back above 6%, might be tempering an otherwise very positive outlook regarding the spring homebuying season.

The 10-year Treasury yield, one of the benchmarks used in pricing mortgages, had finally broken through the 4% floor on Feb. 27 to a 3.96% close. The following Monday, it was back up to 4.05%, and opened March 3 at 4.09%, with a morning high of 4.11%, although by 11:45 eastern time, it had backed off those to 4.07%; trading closed at 4.06%.

Among those taking a more pessimistic view is Paul Hindman, an industry consultant who regularly posts on LinkedIn. In his view, mortgage rates returning to the 7% level are no longer a fear, but a certainty.

"We are now in another 'wait and see' economic zone where the news cycle moves faster than a loan application," Hindman commented on LinkedIn. It grinds the positive momentum to a halt. Rates for the 30-year fixed on Tuesday morning were up to 6.12%, he said in his post.

Lender Price data on the National Mortgage News website at 11:45 on Tuesday morning put the 30-year at 6.35%, 23 basis points higher than the day before when they were at the 6.12% level.

"We were finally seeing homeowners leave their 3% rates to buy again," said Hindman. "This spike threatens to slam that door shut, keeping housing inventory tight and prices high."

It is not business as usual. "Honestly, after five years of 'grit,' I think the mortgage lending industry deserved a boring, predictable spring, but now, we just don't know," he said.

A blog written by Sam Williamson, senior economist at First American, and posted on March 2, said this could be the year the spring purchase season slump ends.

"Spring break may be arriving a little early for home buyers this year," Williamson said. "Late last year, house-buying power surpassed the national median list price for the first time in more than three years, which could support a more vibrant spring home-buying season than in recent years, as more homes fall within buyers' budgets."

In a follow up statement on Tuesday, Williamson said while geopolitical developments can lead to near-term volatility in mortgage rates, "they don't fundamentally alter the underlying housing market dynamics heading into the spring season. There remains significant pent-up demand from buyers who have been sidelined by affordability and inventory constraints in recent years."

In his original commentary, Williamson also pointed out the fact that mortgage rates can change quickly, shifting both buying power and household budgets.

"List prices, by contrast, tend to adjust more slowly," said Williamson. "List prices are often anchored to recent comparable sales or seller biases that may reflect conditions of the past, rather than the current market."

An increase in sales activity in late 2025 coincided with the shift in house buying power.

"Whether price growth stays contained this spring will depend in large part on how supply evolves relative to demand," Williamson said. "If supply remains tight and house-buying power stays ahead of list prices, the spring home-buying season may break out of a three-year slump, even if just modestly."

So even with the geopolitical uncertainty, underlying trends continue to support "a cautiously optimistic outlook" for the upcoming season, he said in the follow-up.

How originators now see the spring market

Alex MacLagan, the owner of MacLagan Home Loans, Highland Park, Illinois, agreed with Williamson. On geopolitical news like this, investors tend to become cautious, with the uncertainty pushing mortgage rates up a bit.

"It is usually a reaction to what could happen, not necessarily what will happen," MacLagan said. It is a common pattern; rates move on the headlines and stabilize when the markets understand the real impact."

This event will not derail the spring homebuying season, but may help it. "Buyers today are already used to rate fluctuations," MacLagan said. "A small temporary increase may actually create urgency rather than hesitation, as buyers want to avoid the risk of rates climbing further."

Cornerstone Home Lending initially expected the lower mortgage rate trend to continue into the spring, but the conflict caused a sharp increase in oil prices which could trigger a resurgence in inflation if it lasts for more than just a few days, said Dan Cooper, executive vice president of capital markets/servicing. This in turn caused a spike in interest rates which is likely to continue for the near term.

While higher inflation normally boosts mortgage rates, if the oil markets remain stable and tensions between the nations cool down, rates typically settle back down, MacLagan added.

Cooper is of the view that the conflict will not affect the spring homebuying season directly.

However, "the new inflation risk with rising energy prices and higher than anticipated mortgage rates could limit affordability improvements," Cooper said. "Purchase activity should remain steady but buyers will likely be more rate sensitive as financing costs will be a concern with the persisting market uncertainty."

Emmanuel St. Germain, the CEO of Choice Mortgage Group, Boca Raton, Florida, says even with all that is happening, it is going to be an "amazing" spring home purchase market.

"This economy is pushing through in spite of anything that gets thrown its way," he continued. The financial markets have the ability to read what's happening and react very quickly. Real estate, however, has a different nature to it.

"People who've been wanting to buy for the last year, two years, three years, and now we have interest rates that are allowing for affordability," St. Germain said. These people don't all of a sudden say, there's a conflict in Iran, which we don't know the outcome of, so let's hold off on buying.

"I don't think what's happening in the Middle East will stop our American markets in real estate at all," and it won't slow the spring season, St. Germain said.

"The longer the interest rates stay stable, the healthier it is for the markets overall," he said.

Further spread compression unlikely

Stephen Kates, Bankrate financial analyst, told aspiring homebuyers to approach the spring season with discipline in a Feb. 25 commentary.

Get a fully underwritten preapproval and shop lenders carefully to remain committed to their budget, as the housing market is undergoing "a slow and uneven evolution rather than a sharp shift."

With the spread between mortgages and the 10-year Treasury at the time under 200 basis points, Kates felt further compression was unlikely.

Now that rates have gone back above 6%, "the reversal driven by the recent crisis is understandably disappointing," Kates said in an emailed update. "Still, short-term fluctuations are common in the mortgage market and this recent move higher is no different."

Bankrate expects the 30-year to average around 6.1% for much of this year, although market volatility could create temporary dips or spikes. He is holding to his view that spread compression is unlikely without direct Federal Reserve or government intervention.

"Ongoing uncertainty related to the Iran conflict, combined with concerns about stubborn inflation is likely to keep a floor under long-term yields for the foreseeable future," Kates said.

This feeling of uncertainty could lead consumers to push pause on major purchases like buying a home, Marty Green, a principal at the mortgage law firm of Polunsky Beitel Green said.

This was a follow up to an earlier commentary from him on three market dynamics which could be a robust catalyst for a market rebound this year.

The first was the favorable interest rate environment, which before the conflict, had stabilized under 6%. If the situation with Iran gets resolved quickly, "rates will tick back downward and under six in fairly short order," Green added in the follow-up interview.

Some lenders might find creative ways in order to keep rates under the 6% threshold. Furthermore, he has been hearing from builder clients and others that consumers have been fairly active in the marketplace in recent weeks.

His other pillars to support a strong spring season are more realistic home sales prices and expanded entry-level inventory.

"A rise in foreclosure activity — mostly resulting from the implementation of more limited loan modification policies for distressed borrowers — is bringing more properties to market," Green noted in his original commentary. "While these circumstances are difficult for the affected homeowners, the resulting sales provide a necessary increase in affordable, entry-level housing."

The battle lines are around what the consumer is feeling.

"You have a fair amount of pent-up demand, and then, on the other hand, you have some uncertainty," Green said. "Which of those are going to win the day?"

Still, the general circumstances in the housing market, "aside from the war and perhaps a little blip in interest rates, is still pretty conducive to buying," Green declared