Impact of the Iran War on U.S. Borrowing Costs and Housing Market

The ongoing war with Iran has significantly affected U.S. financial markets, leading to increased borrowing costs for consumers. Mortgage rates have risen for five consecutive weeks since the conflict escalated, peaking at 6.46% before recently declining to an average of 6.37% for a 30-year fixed mortgage, according to Freddie Mac. This increase in rates is attributed to rising yields on the 10-year U.S. Treasury, which climbed from below 4% at the end of February to around 4.3% in early April, reflecting investor concerns over inflation and the economic implications of a prolonged conflict.

CNN5-week rate climb ends — but sustained drop is ‘unlikely’

The rise in mortgage rates translates to higher costs for homebuyers. For instance, a buyer purchasing a $500,000 home with a 20% down payment would pay approximately $29,931 annually at the current rate, compared to $28,700 if they had locked in a rate in February. This difference accumulates to over $36,000 more over the life of a 30-year loan, raising concerns among economists about affordability for potential buyers.

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The war's impact extends beyond mortgages to auto loans and credit cards. The average rate for a five-year auto loan is currently around 7%, influenced by rising Treasury yields. As auto prices increase alongside gas prices, the affordability of new vehicles is further strained. Additionally, credit card rates remain elevated, averaging above 19%, despite recent Federal Reserve rate cuts. Analysts suggest that unless the Fed reduces rates, these elevated borrowing costs will persist, complicating everyday purchases for consumers.

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The conflict has created a "fog of uncertainty" in the housing market, leading to a slowdown in mortgage applications, new listings, and pending sales. The Mortgage Bankers Association reported a 7% decline in the unadjusted purchase index for early April compared to the previous year, marking the first year-over-year drop since January 2025. While some indicators, such as increased page views for listings on Zillow, suggest ongoing buyer interest, the overall market remains cautious.

5-week rate climb ends — but sustained drop is ‘unlikely’

Economists have expressed concerns about the sustainability of the recent dip in mortgage rates, with many predicting that the uncertainty surrounding the Iran conflict will keep rates elevated. "Until a more permanent resolution emerges, the fog of uncertainty is unlikely to fully lift from the housing market," stated Jiayi Xu, an economist at Realtor.com.

5-week rate climb ends — but sustained drop is ‘unlikely’

Critics argue that the prolonged conflict and its economic repercussions disproportionately affect lower and middle-income families, who are more vulnerable to rising borrowing costs. Larry White, a professor at NYU Stern, noted, "Borrowers are not going to like that," emphasizing the significant financial burden imposed by increased mortgage payments.

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As the situation in the Middle East evolves, the U.S. housing market is expected to remain in a holding pattern. Analysts are closely monitoring upcoming inflation reports and their potential impact on interest rates, which will be crucial for determining the trajectory of borrowing costs in the near future.

5-week rate climb ends — but sustained drop is ‘unlikely’