Iran Conflict Drives Mortgage Rates Higher Despite Spring Buyer's Market
The economic repercussions of the ongoing war with Iran are significantly elevating the expense of purchasing a home, even as numerous housing market indicators across the country currently benefit prospective buyers this spring season. Mortgage rates have been climbing steadily since the conflict's onset, fueled by surging energy prices that amplify inflation concerns. This upward pressure has increased yields on U.S. 10-year Treasury bonds, a key benchmark lenders utilize to price home loans.
Rising Rates and Economic Uncertainty
As recently as late February, the average rate for a 30-year mortgage dipped to just below 6%, marking its lowest point in over three and a half years. However, this week witnessed a sharp rise to 6.46%, reaching its highest level in nearly seven months. This escalation injects further uncertainty into the U.S. economic outlook, particularly as the job market shows signs of faltering.
While rates remain lower than a year ago, their recent ascent has already triggered a slowdown in mortgage applications. Additional increases threaten to dampen home sales during what is traditionally the housing market's busiest period. "The war in Iran has seriously complicated the spring buying season," noted Joel Berner, senior economist at Realtor.com. "I expect that many buyers will be put off by rising rates and mounting economic uncertainty, choosing to bide their time rather than jumping on board for a purchase before rates go up."
Buyer Leverage in a Shifting Market
Home shoppers who can manage current mortgage rates this spring are likely to encounter a more favorable market compared to last year. This shift grants them increased negotiating power with sellers, many of whom are experiencing prolonged listing periods. Consequently, sellers are often more willing to reduce initial asking prices or offer concessions such as closing cost assistance or repair funds to secure a sale, according to real estate agents.
In the Dallas-Fort Worth metro area, for instance, lower listing prices and heightened inventory compel sellers to adopt competitive pricing or provide incentives. "It's been a really good buyer's market to kind of start the year off with," remarked Matthew Crites, an agent with Coldwell Banker Realty.
These trends empowered home shopper Anne King during her pursuit of a $275,000 ranch-style house in Fort Worth. The contract administrator offered $10,000 below the listing price and requested $5,000 toward closing costs, which the seller accepted. Following a home inspection revealing roof damage, the seller agreed to an additional $12,000 for repairs. "Fortunately for me, the seller was in a position they needed to sell," said King, 57, who finalized the purchase in late February just before the Middle East conflict intensified.
King had hoped for lower mortgage rates but opted to buy sooner to avoid potential spring competition and bidding wars, a scenario she faced previously. She secured a 6% mortgage rate and plans to refinance when rates decline. "I feel like I got a good deal on this property, and that's all that matters," she added.
Inventory Growth and Price Declines
Although national home inventory remains low historically, active listings—excluding pending sales—surged nearly 8% in February year-over-year, per Realtor.com data. This increase varies regionally, with the West, Midwest, and South significantly outpacing the Northeast. Approximately 43 of the 50 largest metro areas reported more homes for sale in February compared to a year earlier, with listings rising between 10% and 38.5% in markets like Seattle, Indianapolis, Las Vegas, Houston, and Denver.
As homes linger on the market longer, prices have begun to soften. The median listing price declined year-over-year in just over half of the top 50 metro areas in February, including nearly 9% drops in Austin and Memphis, and reductions exceeding 5% in Washington D.C., San Diego, and Los Angeles.
Further indicating buyer advantage, a Redfin analysis estimates that sellers outnumbered prospective buyers by about 46% nationally in February, up from 30% a year earlier—the largest gap since records began in 2013. Metro areas like Miami, Nashville, and Austin exhibit particularly high seller-to-buyer ratios.
Affordability Challenges Persist
The U.S. housing market has been in a sales slump since 2022, when mortgage rates started rising from pandemic lows. Sales of previously occupied homes remained essentially flat last year at a 30-year low and have stayed sluggish in early 2024, with declines in January and February versus the previous year.
While home price growth has slowed or reversed in many areas, affordability remains a formidable barrier. Wage growth has not kept pace with home prices; for example, the median price of an existing home sold in February was $398,000—nearly five times the median household income, compared to a historical benchmark of three times income.
The recent mortgage rate increase exacerbates this challenge. On a $400,000 home near downtown Dallas with a 20% down payment, a 30-year mortgage at 6% yields a monthly payment of about $2,248. At 6.4%, this climbs to $2,331. Although rates are lower than a year ago, they remain substantially higher than the sub-3% averages available during much of 2020 and 2021.
Seller Pressures Intensify
The housing market has cooled markedly since earlier this decade, when ultralow mortgage rates sparked frenzied buying and soaring prices. While some sellers still receive multiple offers, it is far less common now. Jo Chavez, a Redfin agent in Kansas City, advises selling clients to expect delayed sales and to price homes reasonably. "We have a lot of sellers who have that idea of like, 'well, my neighbors sold for this much, and so I think I should price $10,000 above them,'" said Chavez. "And that's obviously not a logical approach, because there were less sales last year."
In Kansas City, the median listing price rose 4.1% in February year-over-year, but inventory surged nearly 20%. Gail Sanders and her husband, David, listed their Olathe, Kansas home in late February at $535,000, later reducing it to $525,000. Despite open houses, they received no offers by March's end, delaying plans to relocate closer to family. "We just didn't think it was fair to somebody else to put a contingent offer on (another house), but then also lock ourselves into something when we weren't sure how fast ours was going to move," explained Gail Sanders, a senior claims director. "I don't want to be stuck with two house mortgages on the off chance."
