Though there is still a lot of uncertainty, it looks like we could have an actual end to the Iran conflict as tankers are starting to move through the Strait of Hormuz. If we don’t have to worry about oil prices getting much higher for longer, what are the implications for mortgage rates? And what have we learned during this conflict about the housing market and how to look at the future now?
First, we will base everything on the premise I had almost a year ago: the housing market was shifting as of mid-June 2025 as rates were going lower and demand started to pick up. It typically takes other sources six to nine months to catch up to our data lines and you can see how we have explained this trajectory in our weekly Housing Market Tracker articles. Housing demand, even with rates rising from a low of 5.99% to a high of 6.75%, has held up well.
Let’s take our tracker variables and look at what to expect now that the conflict seems imminent.
1. Mortgage spreads should stay at low levels
Mortgage spreads are the hero of the housing market, as they have kept mortgage rates below 6.64% for most of the conflict. If the conflict is truly over and oil flows, one market risk variable is off the table and spreads should stay low.
Both the Godzilla tariffs and the Iran-Israel conflict pushed spreads higher, but only by 0.19%-0.25% basis points. So, the conflict ending is a positive here — as long as the Fed doesn’t guide the market to multiple rate hikes ahead, we shouldn’t see the spreads worsen like we have seen in previous years.
Remember, with the 10-year yield at its current lovel:
- If we had the worst mortgage spread levels of 2023, mortgage rates would be 7.86% today, not 6.65%.
- If we had the worst levels of 2024, mortgage rates would be 7.48% today.
- If we had the worst levels of 2025, mortgage rates would be 7.29% today.
Mind that spreads have been the biggest variable affecting the housing market since mid-June of 2025.
2. The 10-year yield and mortgage rates might not get back to pre-conflict lows this year
Getting the 10-year yield and mortgage rates to pre-conflict lows will be harder than people think even if this conflict is truly over. As always, I believe in the slow dance between the 10-year yield and 30-year mortgage rates as directionally these two have been connected for decades.
My 2026 forecast range was for:
- Mortgage rates between 5.75% and 6.75%
- The 10-year yield fluctuating between 3.80% and 4.60%
For the most part, this forecast channel has held even amid the conflict. But earlier this year, before the conflict even started, inflation growth was rising faster than people had hoped. Also, many at the Federal Reserve now believe that the labor data has improved and isn’t getting worse. This is leading to more Fed members turning hawkish, as softer labor data had been their main reason to want to cut rates two or three more times this year. Now we have gone from two to three rate cuts in 2026 to a rate hike being priced in for 2026.
The conflict ending can change this variable positively as long as the inflation growth rate improves. I wrote here about how much higher rates could go if the conflict kept going. Just a few days ago I wrote about how one of the biggest doves on the Fed, Christopher Waller, turned into a hawk, which complicates things. And in this episode of the HousingWire Daily podcast, I talked about whether mortgage rates have peaked or could go higher.
As you can see in the chart below, a lot has been priced in due to the conflict, and the growth rate of inflation is still above the Fed’s target and heading higher.
Early in the conflict, when we got positive ceasefire headlines, the 10-year yield fell to 4.24%, then it rose after no deal was announced. Later on, working from higher levels, any positive ceasefire headlines only brought the 10-year yield back down to 4.34%. Once we broke over 4.46% on the 10-year yield, bond markets went wild and rose as high as 4.68%. So, the 10-year yield falling to pre-conflict levels might take a lot longer than you think. We should work our way down to 4.46% as the first target, then 4.35% and 4.24% as a more realistic level.
We have a lot of Fed hawks now and the labor data hasn’t gotten worse but better in 2026. The sweet spot for housing was rates under 6.25% with no volatility. We had that before the conflict; it will take time and some key variables to change for that to occur again.
Conclusion
Housing demand data has held firm this year, and even though inventory looks to go negative year over year based on our weekly tracker data, it’s still at much healthier levels compared to 2020-2023.
I’ve focused primarily on spreads and the 10-year yield in this article; one will be positive for sure; the other will take more time and critical variables to improve to get back to the pre-conflict era. However, for the most part, the housing market weathered the conflict as well as it could. Anything better on lower yields and good spreads will be a positive in 2026 and a good setup for 2027 as well.
