At the end of last year, many economists began predicting “flat mortgage rates” for 2026.
In fact, many of the forecasts called for mortgage rates to be completely unchanged throughout the year.
For example, the National Association of Realtors expected a 30-year fixed at 6.0% for all four quarters.
Realtor and Redfin both called 6.3% for all four quarters, and the MBA said 6.4% for Q1 through Q4.
We know they’re already lower than that, but you can start to see the theory of them plateauing around 6% play out. And geopolitics might be the unexpected reason why.
Higher Oil Prices (and the Inflation That Comes with It) Offset Job Losses
Because of the unforeseen Iranian conflict now underway, we’ve got opposing forces at work.
Prior to the strikes in Iran and elsewhere in the Middle East, it was a straightforward labor vs. inflation.
Those are the two components of the Fed’s dual mandate, ensuring price stability and maximum employment.
Inflation was finally showing signs of cooling after some rough years and labor was kind of seesawing along but showing some weakness.
More recently, we saw both labor and inflation cool, meaning interest rates had two concurrent tailwinds. Or so we thought…
Had that kept up, mortgage rates would likely have kept falling deeper into the 5% range, as they were in February.
Perhaps we’d have a 30-year fixed closer to 5.75% today and a lot of buzz in the headlines about the lowest rates since QE ended in early 2022!
Instead, the mortgage rate rally abruptly ended when word of the conflict got out, sending mortgage rates higher.
The long and the short of it is that oil prices have skyrocketed, and all else equal that leads to inflation.
Consumers pay more at the gas pump, and every business that uses oil (all of them) has higher input costs, which are passed onto consumers.
Simply put, the inflation battle that we thought was won is now back on. Round two!
But the latest huge jobs report miss showed that labor is definitely suspect, putting the Fed in a tricky position.
Fed May Be Forced to Hold Off on Rate Cuts as Conflict Transpires
Since labor weakening might call for additional Fed rate cuts to stimulate the economy, but surging oil prices stokes inflation, the Fed may just stand pat.
Prior to Iran, both inflation and labor were cooling to where 2-3 rate cuts seemed to be on the table for 2026.
Now it appears there might only be a single 25-basis point cut (0.25%) for the entire year given the uncertainty.
The Fed doesn’t control long-term mortgage rates like the 30-year fixed, but Fed expectations can play a role in bond pricing.
And bond pricing is heavily correlated with mortgage rate pricing. Of course, all of it is driven by the underlying economic data.
With that data up in the air so to speak, it’s hard for mortgage rates to do much of anything other than play it safe.
They could kind of “hunker down” at these levels and stay there until the situation shows steps toward some sort of resolution.
In the meantime, banks and lenders may price rates on the defensive side of things (higher) while they wait it out.
There may also be increased volatility as events unfold from day to day, or week to week.
But basically flattish mortgage rates, as many of the experts expected.
Mortgage Rates Aren’t Actually Much Higher…
What’s interesting is mortgage rates aren’t even that much higher than they were when they hit those lows in late February.
The 30-year fixed just barely snuck into the 5s at its best point, days before this conflict.
Today, you might be looking at a rate of 6.125% or 6.25%, which isn’t a tremendous difference.
The thing we have to remember though is mortgage rates tend to FALL when there’s a geopolitical event.
There’s usually a flight to safety and interest rates come down as investors ditch risk like stocks in favor of bonds.
In addition, we had that really bad jobs report on Friday. So if the Iranian event never happened and we simply got this bad jobs report, we’d likely be even lower.
How low? Unclear. But it wouldn’t be unreasonable to see a firm 5-handle for the 30-year fixed, something like 5.875% or even lower.
And had it kept on trend, maybe down toward 5.75% and beyond at a perfect time for the spring home buying season.
Of course, it’s important to remember we’re talking basis points here, so the math isn’t hugely different, but it’s more about sentiment anyway.
Think of a prospective home buyer today with no new conflict in the Middle East, who isn’t facing higher gas prices and mortgage rates. Collectively, it all matters.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.