A brief stretch of improving borrowing conditions had begun to revive activity across the housing market, giving mortgage professionals renewed optimism after months of subdued demand. But that momentum quickly collided with global events, underscoring how sensitive mortgage rates remain to geopolitical shocks and investor sentiment.
On Feb. 28, the United States and Israel launched coordinated strikes on Iran, triggering retaliation and escalating tensions across the region. The Islamic Revolutionary Guard Corps then declared the Strait of Hormuz — the waterway between Iran and Oman that carries roughly 20% of the world’s daily oil supply — closed to vessel traffic. Major shipping companies suspended transits and maritime insurers withdrew war-risk coverage, leaving tanker traffic through the choke point largely stalled.
Energy markets reacted immediately. Oil prices surged in the days following the strikes, with analysts from UBS warning that a prolonged disruption to Gulf exports could push prices even higher if shipping through the strait remains restricted. For mortgage markets, higher energy prices matter because they feed directly into inflation expectations, a key driver of Treasury yields and mortgage pricing.
Conflict Pushes Yields Higher
The surge in energy prices quickly spilled into broader financial markets. While geopolitical crises often push investors into U.S. Treasurys — a move that typically lowers yields and mortgage borrowing costs — this time inflation concerns tied to rising oil prices complicated the traditional safe-haven trade.
Instead of falling, Treasury yields moved higher as investors weighed the potential inflationary impact of a prolonged disruption to global energy supplies. The benchmark 10-year Treasury yield, which mortgage pricing closely tracks, climbed back above 4% after briefly dipping below that level late last week, reversing the momentum that had begun to support lower borrowing costs.
The spike arrives just as the spring housing season begins. Mortgage rates had been trending lower through much of 2025 and early 2026, helping improve affordability. Purchase applications were 12% higher than the same week a year earlier, according to the Mortgage Bankers Association’s (MBA) weekly survey.
A prolonged energy shock could complicate that recovery. Energy-driven shipping costs could ripple through global supply chains, potentially lifting construction and freight costs.
“A prolonged closure of the Strait of Hormuz is a guaranteed global recession,” Bob McNally, former White House energy adviser, told the International Business Times.
Still, analysts urged caution. If the conflict does not materially disrupt broader housing trends, recent affordability gains could continue supporting demand despite short-term volatility.
What Mortgage Professionals Should Watch
- 10-Year Treasury Direction: Sustained moves above 4% could keep primary mortgage rates elevated.
- Oil Prices: Brent approaching $100 would intensify inflation expectations.
- Federal Reserve Meeting (March 17–18): No rate cut expected, but forward guidance could shift the yield curve.
- Pipeline Management: Lock volatility may increase as borrowers react to rate swings.
- Secondary Market Spreads: Volatility in mortgage-backed securities (MBS) markets could widen spreads even if Treasury yields stabilize.
Wider Spreads Possible If Secondary Market Volatility Persists
For context, the 30-year fixed rate at 6.12% remains nearly a full percentage point below its 6.76% average a year ago, according to Freddie Mac. Fannie Mae and the Mortgage Bankers Association had both projected rates to hover near 6% through the end of 2026.
History suggests initial rate spikes tied to Middle East conflict often retrace. But in this cycle, the market is trading inflation first and geopolitics second. While the housing recovery remains intact, mortgage pricing is once again being driven by forces far beyond housing — oil markets, Treasury yields, and geopolitical risk in the Strait of Hormuz. Mortgage professionals should monitor these external factors closely to navigate potential market shifts.
