Mortgage Rates Jump After Iran Strikes

The average rate on a 30-year fixed mortgage jumped 13 basis points to 6.12% on Monday. This move erased a decline from the previous week that had brought the rate down to 5.99%, its lowest point in several years. This rate surge is directly tied to the bond market, where the yield on the 10-year U.S. Treasury note climbed 9 basis points to 4.051%. Mortgage rates typically follow the direction of this key benchmark. The sell-off in bonds was fueled by a nearly 6% spike in oil prices to around $71 a barrel, stoking fears of resurgent inflation. Unlike typical reactions to geopolitical turmoil, investors did not engage in a "flight to safety" by buying U.S. Treasury bonds. Instead, the concern that higher energy costs will drive inflation led to a wider sell-off of both stocks and bonds. The inflation worries have shifted expectations for future Federal Reserve action. Financial markets now see a reduced likelihood of interest rate cuts in the near term, with some traders pushing back bets for a rate reduction to July or even September. The sudden reversal comes just as the housing market was seeing a glimmer of hope. The prior week, Freddie Mac's survey had reported the average 30-year rate dipping to 5.98%, the first time it had been below 6% in over three years, which had begun to revive homebuyer interest ahead of the spring season. Historically, while mortgage rates can spike initially during geopolitical conflicts, they often fall later. Past events, including the 2003 Iraq war and the 2020 killing of an Iranian general, saw similar initial reactions followed by a subsequent drop in rates. The long-term impact will depend on the duration of the conflict and its effect on global energy supplies.