Financial and commodities markets gyrated in volatile trading Thursday after President Donald Trump spoke about the U.S.-Israeli war with Iran, and may mean more bad news for mortgage rates.
In a primetime address Wednesday night, Trump insisted the war would end "very shortly" but suggested that the coming weeks would bring an escalated tempo of U.S. strikes.
"We are going to hit them extremely hard over the next two to three weeks. We are going to bring them back to the stone ages where they belong," he said.
Oil prices surged more than 10% following the speech, with Brent crude jumping back above $100. The stock market opened sharply negative, with the Dow dropping 600 points before swinging briefly positive in volatile trading.
For consumers, it may spell more pain at the gas pump and higher mortgage rates, which surged in March as the oil shock from the war drove fears of renewed inflation.
"President Trump made it clear that the conflict in Iran is not over, stating that more operations will be carried out in the coming weeks," says Realtor.com® senior economist Joel Berner. "Dragging out this conflict stokes concerns that the oil shock currently wracking the world economy will continue for longer, leading to higher consumer prices in the future."
For mortgage rates, movement in the 10-year Treasury yield is a key indicator, as mortgage lenders frequently use the 10-year as a baseline for pricing home loans.
Since the war began on Feb. 28, the 10-year yield has surged from 3.96% to more than 4.3%. Mortgage rates bounced off a three-year low of 5.98% in late February to 6.48% on Thursday, a gain of half a percentage point, according to Freddie Mac.
"When tomorrow's dollars are expected to be less valuable because of higher future prices, it takes more of them to borrow money today for something like a home purchase, which is why mortgage rates have been climbing," says Berner.
In other words, lenders typically demand a higher interest rate when they expect inflation to get worse in the future, in order to offset their loss of spending power from the weaker value of future dollars.
"Rates will likely continue to climb for as long as it appears that this conflict will continue, and continue to prop up the price of oil," says Berner. "This has the potential to slow down the housing market during what is traditionally one of its strongest periods in the spring."
Compared to late February, current mortgage rates are adding about $100 to monthly payments on the median priced home, eroding purchasing power for homebuyers.
In addition to higher rates, prospective homebuyers will also be feeling the household-budget pinch of higher gas prices. The national average price of regular gas hit $4.08 on Thursday, up from $2.99 a month ago, according to AAA.
For the housing market, the hit to consumers comes at the peak of the spring housing season that is typically the most popular time to buy and sell homes.
Despite the headwinds, Realtor.com housing data for March suggests that the market remained unfazed by the initial weeks of the war.
"Of potential warning signs—new listings, contract signings, price cuts, cancellations—none is flashing red yet," says Realtor.com senior economist Jake Krimmel. "Even so, the path to a big spring sales rebound has narrowed, with the market heading into April facing more headwinds than just a month ago."
