Iran War Mortgage Volatility Expected to Dampen Home Sales

The National Association of Realtors (NAR) has revised its expectations for the 2026 housing market, with its chief economist stating that volatile mortgage rates driven by the Iran War are now expected to dampen home sales this year.

As of April 2, 2026, the interest rate on a conventional 30-year home loan reached 6.46%, according to data from Freddie Mac. This figure represents the highest borrowing cost since September 2025.

Mortgage rates climbed for five consecutive weeks leading up to April 2, 2026. This upward trend follows a period in late February 2026 when borrowing costs had dipped below 6%.

Impact of the Iran War on Borrowing Costs

Economists attribute the surge in rates to the war in Iran, which entered its second month in early April 2026. The conflict intensified following U.S. And Israeli attacks on Iran on February 28, 2026.

The war has exerted upward pressure on mortgage rates by increasing government bond yields and stoking concerns regarding inflation. Because mortgage rates typically track the 10-year Treasury bond, these yields directly influence borrowing costs for homeowners.

On April 2, 2026, the 10-year Treasury yield stood at 4.26%. Here’s an increase from the 3.96% yield recorded just before the military actions on February 28, 2026.

When inflation goes up, investors in bonds — and that includes mortgage-backed securities — demand a higher return to compensate them for that increase

Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA)

Monetary Policy and Inflation Forecasts

The trajectory of the housing market is further influenced by the Federal Reserve’s monetary policy. Mike Fratantoni of the Mortgage Bankers Association noted that inflation appears to be stuck above the central bank’s 2% annual target.

Due to these inflation levels, a growing number of Wall Street analysts and economists predict that the Federal Reserve will refrain from lowering its benchmark rate for the duration of 2026.

PNC Financial Services stated in a report released during the first week of April 2026 that mortgage rates are expected to remain elevated above 6%. The firm attributed this to markets pricing higher expected inflation into long-term rates.

Consumer and Market Response

The unexpected jump in borrowing costs has created challenges for prospective homebuyers. Rachel Marks, a resident of Brooklyn, New York, noted that while the period before the war seemed favorable for buyers, the current environment is different because everything is just going up, up, up.

Despite the economic uncertainty and rising rates, some market activity persists. Realtor.com reported on April 4, 2026, that buyers continue to move and homes are selling faster than in recent weeks.