Layla Zulfa
Despite a challenging economic landscape marked by elevated oil and gas prices, rising mortgage rates, and ongoing geopolitical instability stemming from the conflict in Iran, the U.S. existing home sales market has demonstrated a surprising resilience, posting positive weekly gains. However, analysts caution that this momentum may be difficult to sustain as mortgage rates push above critical thresholds, and the duration of the Iranian conflict looms as a significant economic determinant.
The housing market has been navigating a complex environment in recent weeks. Consumers are grappling with higher energy costs, a direct consequence of global oil and gas price increases, which can impact discretionary spending and overall household budgets. Compounding this, the cost of borrowing for home purchases, reflected in mortgage rates, has been on an upward trajectory. For much of the past year, mortgage rates hovering around 6.25% have been considered a relatively stable point, but recent weeks have seen them breach this mark and continue their ascent. This has led to concerns that sustained periods with rates above 6.64% and approaching or exceeding 7% could significantly dampen housing demand, a historical pattern observed in market data.
The conflict in Iran has introduced a new layer of economic uncertainty. The initial escalation of tensions, which began in late February 2026, has had immediate and ripple effects on global energy markets. Crude oil prices, a key indicator of geopolitical risk, saw an immediate surge following reports of military actions. This price shock directly impacts transportation costs, manufacturing inputs, and consumer energy bills, creating inflationary pressures that the Federal Reserve is closely monitoring. The prolonged nature of the conflict, particularly if it extends beyond mid-March, is prompting economists and market analysts to revise their outlooks, anticipating a scenario where higher interest rates persist for an extended period.
Weekly Pending Home Sales: A Measure of Near-Term Demand
Weekly pending home sales data offers a granular, week-to-week snapshot of the market’s activity. While susceptible to short-term fluctuations and holiday impacts, the past five weeks have shown positive trends in this crucial metric. However, the recent surge in mortgage rates presents a significant headwind to maintaining this positive momentum.
Historically, mortgage rates exceeding 6.64% and breaking above 7% have been correlated with a noticeable slowdown in housing data. The "sweet spot" for the market, excluding transient factors, has generally been observed when rates remain below 6.25% in recent years. The current environment, with rates pushing higher, poses a direct challenge to the demand levels observed in recent weeks. The market will be closely watching whether the demand observed, even amidst "crazy headlines," can withstand sustained higher borrowing costs.
The critical period for assessing the impact of these economic headwinds on pending home sales is upon us. If the conflict in Iran and its associated economic fallout, including sustained higher energy costs and potential supply chain disruptions, continue beyond March 21st, it could necessitate a broader revision of housing market forecasts. This suggests a heightened probability of a "higher for longer" interest rate environment, which would inevitably cool buyer activity.
Mortgage Purchase Application Data: A Forward-Looking Indicator
Mortgage purchase application data serves as a leading indicator for home sales, typically predicting trends 30 to 90 days in advance. Last week, this data showed a 12% year-over-year growth and a 1% week-to-week increase, signaling continued buyer interest. However, the pace of weekly growth has cooled, and there is a risk of a negative weekly print this week, a common occurrence following consecutive weeks of rising mortgage rates.
For this particular data line, sustained positive weekly growth, ideally spanning 12 to 14 weeks, is considered a robust sign of a healthy market. When combined with consistent year-over-year growth, it provides a strong foundation for future sales activity. The year 2026 has largely seen positive year-over-year growth in purchase applications. While week-to-week figures have also been positive, this has been more easily achievable when mortgage rates were below the 6.25% threshold. The current upward trend in rates makes maintaining positive week-to-week growth more challenging.
The 10-Year Treasury Yield and Mortgage Rate Dynamics
The 10-year Treasury yield is a key benchmark for mortgage rates, and its recent performance has been a significant factor in the housing market’s outlook. In HousingWire’s 2026 Housing Forecast, anticipated ranges for the 10-year yield were established. However, the unfolding geopolitical situation has disrupted these projections.
The intensification of the conflict in Iran, which began in late February 2026, prompted a serious reassessment by the bond market. For the first time since September 2025, the 10-year yield closed above 4.31% on Friday, March 20th. This move signifies that the market is no longer anticipating Federal Reserve rate cuts in the near future. Instead, the bond market is now pricing in the possibility of a rate hike in 2026, a dramatic shift in expectations driven by inflation concerns stemming from the conflict.
This week is pivotal for determining the trajectory of mortgage rates. The current geopolitical climate has created a clear pathway for the 10-year yield to reach 4.60%, the upper end of the previously forecasted range. Any further escalation or prolonged duration of the conflict in Iran could lead to additional increases in bond yields and further solidify expectations of rate hikes. This would translate directly into higher mortgage rates for consumers, potentially stifling housing demand further.
Mortgage Spreads: A Buffer Against Volatility
Mortgage spreads, the difference between the yield on the 10-year Treasury and the interest rate on a 30-year fixed mortgage, have been a relatively positive factor for the housing market in 2026, helping to mitigate mortgage rate volatility. These spreads have been close to historical normal levels, offering some stability.
Initially, as bond yields were falling in February, mortgage spreads widened slightly as lenders attempted to maintain rate stability. However, the recent conflict in Iran has also seen spreads widen again. Despite this, the spreads remain largely favorable, and their current level is credited with preventing mortgage rates from surging back above 7%.
Historically, mortgage spreads have typically ranged between 1.60% and 1.80%. Last week, the spreads closed at 1.97%. It is important to note that Friday’s single-day spread movements, which can be volatile, are not fully captured in this weekly data. However, even with the current level, the spreads are acting as a partial cushion against the upward pressure on mortgage rates driven by rising Treasury yields.
Weekly Housing Inventory: A Slowing Seasonal Upturn
The traditional seasonal increase in housing inventory was expected to begin in earnest. However, the growth rate of inventory has significantly decelerated compared to the peak levels observed last year. This slowdown is so pronounced that there is a possibility of seeing negative year-over-year prints in weekly inventory data. Despite this, current inventory levels remain far from the historically low and unhealthy conditions seen in 2021, 2022, and 2023.
The year-over-year growth in inventory has fallen from a high of 33% in 2025 to a more modest 6.35% last week. Historically, inventory growth has accelerated during periods of higher interest rates, softening demand, and an increase in year-over-year new listings. While new listings data has remained negative year-over-year, this week’s figures represent a positive start to the spring seasonal increase in available homes.
New Listings Data: A Cause for Caution
New listings data has been a source of disappointment for much of 2026. While there remains an expectation that weekly listings could surpass 80,000 at certain points, the year-over-year growth rate has been consistently negative for several weeks.
The hope is that new listings will reach between 80,000 and 100,000 per week during the peak seasonal periods, mirroring the robust activity seen from 2013 to 2019. For context, during the severe housing market downturn that led to the 2008 financial crisis, weekly new listings ranged between a staggering 250,000 and 400,000 for several years. The current subdued level of new listings, even with potential seasonal upticks, suggests that homeowners remain hesitant to list their properties, potentially due to concerns about selling in a market with rising rates and economic uncertainty.
Price Cut Percentage: Reflecting Market Dynamics
Typically, approximately one-third of homes experience price reductions before they are sold, a reflection of the dynamic and often negotiable nature of the housing market. As mortgage rates and inventory levels rise in tandem, an increase in the percentage of price cuts is often observed.
In HousingWire’s 2026 price forecast, a national negative 0.62% annual growth was projected. This forecast was initially challenged by lower-than-expected mortgage rates at the beginning of the year and the Federal Housing Finance Agency’s (FHFA) purchase of mortgage-backed securities, which helped lower mortgage spreads more than anticipated. This created a scenario where the initial forecast appeared overly pessimistic. However, the current economic climate, with the potential for higher and sustained mortgage rates due to the conflict in Iran, may bring the initial price forecast closer to reality. Despite this, the percentage of price cuts last week remained below the levels seen at the same time last year.
The Week Ahead: Geopolitical Risk Dominates Economic Outlook
The immediate future of the U.S. economy and its housing market hinges significantly on the developments surrounding the conflict in Iran. Last week’s breach of a key level in the 10-year Treasury yield has set the tone for the entire year, signaling a period of higher inflation, sustained higher interest rates, and the diminished likelihood of Federal Reserve rate cuts. In fact, the prospect of rate hikes in 2026 has re-entered the economic discourse.
Should the conflict in Iran intensify or persist, further rate hikes could be priced into the market. In such a scenario, Federal Reserve officials are unlikely to discuss rate cuts unless the economy experiences a severe recession. Therefore, the ongoing geopolitical situation in Iran is currently the dominant factor shaping the economic landscape and the trajectory of the housing market for the remainder of 2026. The uncertainty generated by this global event has far-reaching implications, impacting everything from consumer confidence and borrowing costs to the availability of housing and overall market stability. Market participants will be closely monitoring diplomatic efforts and military developments in the region as they attempt to navigate the increasingly complex economic environment.
