Will war with Iran send mortgage rates higher or lower?

Iran conflict

Now, traditionally, when there was military conflict in the Middle East, people would expect money to flow into the U.S. dollar and the U.S. bond market as a safe haven, and oil prices would rise. But in the last few years, this really hasn’t happened.

Part of this, I believe, is that traders don’t fear a wider escalation in the Middle East and see these events being contained. With the midterms coming up, there isn’t a fear of a long, protracted war with Iran, and Trump seems to like a quick fix and nothing too prolonged when it comes to military actions.

We will keep an eye on Sunday night trading and what happens Monday morning, but if this goes like other recent events, it might not have a prolonged impact. One key will be watching the supply of oil through the Strait of Hormuz. The bond market and mortgage rates haven’t had too much wild movement this year despite some really wild headlines. The attack on Iran will be another test of this.

10-year yield and mortgage rates

In the 2026 HousingWire forecast, I anticipated the following ranges:

• Mortgage rates between 5.75% and 6.75%
• The 10-year yield fluctuating between 3.80% and 4.60%

Friday was a crazy day. Coming off a good jobless claims report and a hot PPI inflation report, you would have thought the 10-year yield and mortgage rates would be higher. However, that wasn’t the case. Stocks were selling off, there was negative sentiment on AI taking jobs away and maybe bond traders got a heads-up on the Iran situation, which sent the 10-year yield straight to a key level on Friday. And this week is jobs week!

I am getting closer to the bottom end of my forecast for 2026 on the 10-year yield and mortgage rates, so this week will be very critical to see not only how the markets react to the Iran situation, but also the jobs data. 

In any case, the 10-year yield closed at a 2026 low and rates ended the week lower at 5.99%, according to Mortgage News Daily, while Polly’s mortgage rate lock data shows a weekend rate of 6.23%.

Mortgage spreads

Mortgage spreads remain a positive story for housing in 2026, reducing mortgage-rate volatility, and are close to normal levels.

Historically, mortgage spreads have ranged from 1.60% to 1.80%. Last week’s spreads closed at 1.93%.

If spreads matched the 2023 peak levels, mortgage rates would be 1.20 percentage points higher, at 7.17%. With spreads returning to normal, mortgage pricing can remain lower for longer than in previous years.

Realistically, we only have 20-34 basis points of improvement left in the spreads. The longer that volatility is compressed, the better spreads can get later in the year, but the big improvement here has already run its course. 

Weekly pending sales

Pending home sales data provides a week-to-week perspective, though results can be affected by holidays and short-term fluctuations, such as the giant winter storm in January. We were showing year-over-year growth at the start of the year, and that snowstorm did slow things down.

We just had back-to-back weeks of positive year-over-year growth; this was the case before the snow impacted the housing data. Now we should have one more existing home sales report that will be impacted by the snow data and we can move on to those reports, but you can get the best forward-looking data here. 

Weekly pending sales last week over the last two years:

• 2026: 63,209
• 2025: 60,410

Mortgage purchase application data

Purchase application data is a forward-looking data line: the growth here leads sales roughly 30-90 days out, and we saw 12% year-over-year growth in this data line last week.

However, what I really value is at least 12-14 weeks of positive weekly growth. If you can get this in addition to year-over-year growth, we have something legit for sure. For 2026, every week has shown positive year-over-year growth. Over the last two weeks, the year-over-year growth percentage has increased higher now that the snow impact has melted away. 

As you can see in the chart below, we do have some seasonality in the weekly data.

Here’s 2026 so far:

• 2 positive week-over-week prints
• 4 negative week-to-week prints
• 1 flat week-to-week print
• 4 weeks of double-digit year-over-year growth
• 7 weeks of positive year-over-year growth

Weekly housing inventory data

Housing inventory data fell last week, which isn’t too shocking, since this week has shown declines in the past, so I wouldn’t put much weight on this week’s data. Hopefully, we will see the traditional seasonal increase in inventory starting in March. Inventory is at much healthier levels now than a few years ago.  

We have gone from 33% year-over-year growth in inventory at the highest point in 2025, to 8.04% last week.

• Weekly inventory change: (Feb. 20-Feb. 27): Inventory fell from 700,259 to 690,357
• Same week last year: (Feb. 21-Feb. 28): Inventory fell from 640,221 to 639,357

New listings data

New listings data also showed a weekly dip, which I chalk up to seasonal shifts in the data. We should get new listings data above 80,000 during the seasonal peak months, which would be the area of what normal new listings would look like on the low end. 

I am hoping for the new listings data to range between 80,000 and 100,000 per week during the seasonal peak periods, as it did from 2013-2019. For context, during the housing bubble crash, new listings ranged from 250,000 to 400,000 per week for several years.

Here is last week’s new listings data for the past two years:

• 2026: 50,245
• 2025: 60,410

Price-cut percentage

Typically, about one-third of homes undergo price reductions before they sell, reflecting the dynamic nature of the housing market. As mortgage rates and inventory rise together, the percentage of price cuts increases.

However, rates are near multiyear lows, so we are now seeing negative year-over-year price-cut percentage data. This shouldn’t be surprising given that demand has picked up slightly and inventory growth has slowed. We are starting the seasonal shift higher in the price-cut data so the year-over-year data will be key.

The price-cut percentage last week is now 1.25% lower than this time last year.

The price-cut percentage for last week:

The week ahead: Iran, jobs week, retail sales and more

To keep it simple, this week could be nuts! Not only do we have the Iran situation, which can either cool down or escalate, but it’s jobs week! We also have the ISM and retail sales report, Fed speeches and the jobless claims.

It might get hectic this week, but also remember that mortgage spreads being better has compressed volatility with rates. However, we always watch how the bond market reacts to the jobs data, which for me has always been the key.