Mortgage Demand Drops Amid High Rates and Iran Tensions

U.S. Mortgage demand from homeowners and potential buyers is declining as interest rates reach their highest levels since September 2025, driven by the economic fallout from the war with Iran that began on February 28, 2026.

Weekly demand for mortgage refinances dropped by more than 40% in the month leading up to April 1, 2026. This decline coincides with a sharp increase in borrowing costs that has reversed expectations for a housing market recovery in 2026.

Rising Interest Rates and Market Impact

According to Freddie Mac data released on April 2, 2026, the average interest rate for a 30-year fixed-rate mortgage climbed to 6.46%. This represents a surge of nearly half a percentage point since the conflict began on February 28.

Prior to the start of the strikes, the average rate on a 30-year fixed loan was 5.99%, according to Mortgage News Daily. Some reports indicate rates had dipped to their lowest level in more than three years, falling just under 6% in the final week of February before the conflict began.

The increase in rates has already slowed buyer activity. Data from the Mortgage Bankers Association showed that applications for mortgages to purchase homes dropped 5% during the week preceding March 25, 2026.

Economic Drivers of the Rate Spike

The rise in mortgage rates is attributed to a jump in U.S. Treasury yields. Investors are reacting to the Middle East conflict with fears of a bout of inflation, which typically makes fixed-income bonds less attractive.

Because 10-year Treasury rates influence the pricing of various loans, including credit cards and mortgages, the increase in bond yields has made borrowing more expensive for American consumers. This trend is further complicated by elevated gasoline and energy prices resulting from the war.

Revised Housing Market Forecasts

Zillow had previously forecast a 4.3% increase in the sales of existing homes for 2026 compared to the previous year, positioning 2026 as a reset year for the market. However, chief economist Mischa Fisher noted that new uncertainty regarding inflation and energy prices has added complexity to this outlook.

Fisher provided revised forecasts for home sales growth based on the duration of the current scenario:

• If the scenario lasts through April 30, 2026, home sales are forecast to rise 3.48% this year.
• If the scenario lasts until July 1, 2026, the gain would drop to 2.33%.
• If the scenario lasts until September 1, 2026, the gain would decrease to 1.21%.

Fisher also cited the potential for a slight increase in the unemployment rate due to reduced consumer spending power caused by higher prices.

Industry Perspective

The timing of the rate hike has particularly impacted the traditional spring buying season. Joel Berner, a senior economist at Realtor.com, stated that The war in Iran has seriously complicated the spring buying season.

Despite the recent spike, current mortgage rates remain slightly lower than they were during the same period in 2025, when the average rate for a 30-year fixed mortgage was 6.64%.