US mortgage rates jump amid Iran war; housing sector may be in recession

After a brief dip to lows not seen since 2022, US mortgage rates are on the rise again. The war in the Middle East, surging energy prices and the rising likelihood of Federal Reserve rate hikes in coming months are expected to further impact a domestic housing market that is already under pressure.

Throughout March, the war in the Middle East has driven up energy prices and inflation expectations and pushed the average 30-year mortgage rate to 6.38%, its highest point in more than six months. Additionally, home sales are falling through at rates not seen in years, the pace of rising home prices has slowed substantially, and the market is increasingly imbalanced with sellers outnumbering buyers by close to 50%, according to new private sector data.

With the US labor market wobbling and consumer confidence crumbling under the weight of rising gas and grocery prices, the broader economy has thus far avoided a recession, but the housing sector has not, Margaret Whelan, CEO and founder of Whelan Advisory Capital Markets, said in an interview.

"Housing is in a recession," Whelan said.

Near the end of February, the 30-year fixed rate mortgage average in the US dropped to 5.98%, its lowest level since September 2022.

"We were looking for gradual improvement in the housing market this year due to lower rates and a stable to improving labor market," Nancy Vanden Houten, lead US economist at Oxford Economics, told S&P Global Market Intelligence. "We've postponed that improvement in our forecast."

Higher for longer

If not for the war, mortgage rates would likely have drifted modestly lower; instead, they are soon headed to 6.5%, according to Ershang Liang, an economist with The PNC Financial Services Group.

"If the Iranian conflict is short-lived and oil prices retreat, inflation should recede later this year and the impact on mortgage rates will be small," Liang said. "But the longer the conflict lasts, and the higher energy prices go, the more expectations for inflation increase, driving up mortgage rates."

Interest rates will likely stay higher for longer, Whelan with Whelan Advisory said, while inflation is expected to continue to rise as the latest Middle East war drives up oil and gas prices, leaving potential home buyers increasingly uncertain as hiring has slowed and joblessness has risen.

"If I don't feel good about my job, my income, I'm just not buying a house," Whelan said. "There are very few bright spots in the housing market right now."

When the average 30-year mortgage rate fell below 6% in February, there was growing speculation that a psychological barrier had been broken through, bolstering optimism ahead of the spring buying season, according to Brad Case, chief residential economist at Homes.com.

"We lost the opportunity for that," Case said. "It's not like we're going to lose the home buying season this spring, but I am worried that we won't see the significant improvement that I thought we were going to see just a few weeks ago."

Jobs and affordability

The US housing market is buried under layers of uncertainty as the war in Iran has boosted the likelihood of higher rates, which, combined with a weakening job market has created "the worst of both worlds for homebuyers," Daryl Fairweather, chief economist of Redfin, said in an interview.

"Rates affect affordability for many buyers, while job security affects how willing people are to buy a home," Fairweather said. "Even if someone can technically afford a home, they're less likely to buy if they're unsure about their financial security."

This has led more first-time homebuyers to call off their home search and opt to rent instead, choosing flexibility amid uncertainty, Fairweather said.

The war with Iran was launched when the US housing market was already fragile, with housing demand underperforming amid high rates and a soft jobs outlook, Fairweather said. This has shifted balance in the market with a record 46.3% more sellers than buyers in the market in February, according to Redfin data.

Arguably, this gap between buyers and sellers could give buyers more leverage. However, with so many unable to afford to buy due to high home prices, rising rates and widespread economic uncertainty, a growing number of sellers are delisting their homes from the market and waiting.

"Ultimately, improving affordability is what will pull us out of this slump — which I don't expect until we see improvements to the job market or rates," Fairweather said.

US home prices grew 1.75% from February 2025 to February 2026, even lower growth than during the height of the pandemic, according to the Redfin Home Price Index.

Current mortgage rates make it unaffordable for homeowners who bought or refinanced when rates were below 3% to move, limiting supply at a time when residential construction is also weak, said Liang with PNC.

If the war in Iran were to end and energy prices were to drop, a couple of Fed rate cuts could lead to lower mortgage rates and a rebound in demand, Liang said.

"With housing supply tight, any improvement in demand is likely to be met with stronger price growth, limiting any potential rebound," Liang said. "Eventually, supply will improve as the lock-in effect from low mortgage rates in the aftermath of the pandemic fade, but that process will play out over years, not months."