The War In Iran Hits Home As Housing Rebound Stalls

A week before the start of the war with Iran, the White House was celebrating the drop in interest rates on new home loans to the lowest level in nearly four years as a sign the stagnant U.S. housing market was turning around.

Less than two months later, the outlook has sharply deteriorated.

Mortgage rates have climbed by nearly half a percentage point since Iran closed the Strait of Hormuz, delivering a shock to global supply chains that pushed up consumer prices and raised the risk of a recession. Existing home sales in March fell to a nine-month low, the National Association of Realtors said on Monday, and applications for new home loans have declined for four consecutive weeks, just as the spring homebuying season gets underway. Consumers are more pessimistic now than they were at the height of the pandemic.

"People are worried,” said Mike Simonsen, the chief economist at the housing brokerage Compass. “I was on a call with 500 agents today, and that was definitely one of the comments that popped up: We’re worried about war. We’re worried about what happens because of war.”

The slowdown in the market is a clear indication of how the conflict in the Middle East is weighing on the economy in real time, even as the Trump administration downplays its long-term effects. Housing affordability has been at the core of cost-of-living issues that have dogged Republicans in recent elections, and anything that keeps potential homebuyers on the sidelines will pose a risk to President Donald Trump and GOP leaders before the midterm elections.

Trump has sought to address the housing affordability crisis through executive actions aimed at slashing red tape for new construction and promoting access to mortgages through community banks. Earlier this year, at the president’s direction, the housing market giants Fannie Mae and Freddie Mac purchased $200 billion in mortgage-backed securities in a bid to bring down mortgage rates. The White House on Monday published an economic report spotlighting how chronic shortages have exacerbated the housing supply crunch.

But the war with Iran is pressuring American consumers that will further weaken the housing market.

“Rates have been migrating up again — especially since Iran — and that’s because of the inflation threat from higher oil prices,” said Stephen Moore, a former Heritage Foundation economist who has been an unofficial adviser to Trump over the years. “The problem with higher mortgage rates is that it hurts the seller and the buyer, so the only person that helps is the bank. It’s a very negative thing.”

“If Republicans prevail politically here, they have to persuade Americans that this short-term pain is worth whatever long-term gain” they get from defeating Iran, Moore added. But with traffic at the Strait of Hormuz at a standstill, “it doesn’t feel victorious.”

The market’s early response to the president’s ceasefire with Iran was favorable. But talks failed to establish a basis for lasting peace, and Trump’s subsequent blockade of Iranian port traffic will further strain the world’s oil supplies in the near term. That could put upward pressure on long-term bond yields that affect how mortgages are priced.

In a statement, White House spokesperson Davis Ingle said the president has “always been clear about short-term disruptions from Operation Epic Fury, but he remains committed to his agenda for long-term housing affordability.”

Trump’s Council of Economic Advisers has pegged the size of the U.S. housing shortage at about 10 million units — a much larger gap than previous estimates from domestic housing market specialists — and recommended a menu of state and local policy changes to streamline production and cut through the bureaucratic morass that can slow home construction.

The housing affordability crunch has been severe enough to pave the way for bipartisan legislation. House lawmakers overwhelmingly passed a bill in February to modernize housing programs, expand manufactured and affordable housing and boost community bank lending. And Senate Banking Chair Tim Scott (R-S.C.) and the committee’s ranking Democrat, Sen. Elizabeth Warren of Massachusetts, passed a separate housing bill that includes a Trump-backed provision to restrict Wall Street-backed firms from buying up single-family homes. House and Senate leaders are at loggerheads over how to reconcile the two bills.

The war with Iran has complicated the GOP’s ability to point to housing policy as proof that they’re serious about addressing longstanding cost-of-living issues, said GOP strategist Doug Heye.

“Overwhelmingly, what I hear from Republicans on the Hill is this is what they want to be talking about,” he said, adding that the war’s effects have compounded existing problems around affordability. “It’s just not a conversation that they’re able to have given everything that the administration sort of throws in their way.”

The housing market was showing signs of health before the war. While mortgage rates had fluctuated with geopolitical shocks, they had generally been on a downward trajectory over the previous year. Mortgage originations were projected to climb in 2026, measures of housing affordability were improving, and Federal Reserve officials were expected to lower short-term interest rates as the effects of Trump’s tariffs faded from inflation gauges.

Jake Krimmel, a senior economist at Realtor.com, said mortgage rates are still low compared to recent spring buying periods. Buyers who aren’t dissuaded by recent events are “looking at probably the best spring housing market on paper,” he said.

The spike in oil prices may have limited long-term economic effects if it’s short-lived. White House officials say they are bullish that rates will quickly come down once the Iran crisis is resolved, and it’s possible the housing market could rebound.

But the longer oil and gas prices remain elevated, the greater the likelihood that inflation seeps into other sectors of the economy.

Wall Street economists have also been dialing up their forecasts for the likelihood of a recession. The prospect of a slumping economy and rising consumer prices will make it that much harder to convince would-be homebuyers to come off the sidelines.

“It’s not just mortgage rates that make closing [on a house] today less affordable than it was six weeks ago. It’s also the fact that people are probably forced to tighten their belt loops a little bit when it comes to what they're spending on everything else,” Krimmel said. “That down payment gets a little bit more difficult to save for now than it was before.”