The war in Iran hits home as housing rebound stalls

A week before the start of the war with Iran, the White House was celebrating the drop in interest rates on new home loans to the lowest level in nearly four years as a sign the stagnant U.S. housing market was turning around.

Less than two months later, the outlook has sharply deteriorated.

Mortgage rates have climbed by nearly half a percentage point since Iran closed the Strait of Hormuz, delivering a shock to global supply chains that pushed up consumer prices and raised the risk of a recession. Existing home sales in March fell to a nine-month low, the National Association of Realtors said on Monday, and applications for new home loans have declined for four consecutive weeks, just as the spring homebuying season gets underway. Consumers are more pessimistic now than they were at the height of the pandemic.

"People are worried,” said Mike Simonsen, the chief economist at the housing brokerage Compass. “I was on a call with 500 agents today, and that was definitely one of the comments that popped up: We’re worried about war. We’re worried about what happens because of war.”

The slowdown in the market is a clear indication of how the conflict in the Middle East is weighing on the economy in real time, even as the Trump administration downplays its long-term effects. Housing affordability has been at the core of cost-of-living issues that have dogged Republicans in recent elections, and anything that keeps potential homebuyers on the sidelines will pose a risk to President Donald Trump and GOP leaders before the midterm elections.

Trump has sought to address the housing affordability crisis through executive actions aimed at slashing red tape for new construction and promoting access to mortgages through community banks. Earlier this year, at the president’s direction, the housing market giants Fannie Mae and Freddie Mac purchased $200 billion in mortgage-backed securities in a bid to bring down mortgage rates. The White House on Monday published an economic report spotlighting how chronic shortages have exacerbated the housing supply crunch.

But the war with Iran is pressuring American consumers that will further weaken the housing market.

“Rates have been migrating up again — especially since Iran — and that’s because of the inflation threat from higher oil prices,” said Stephen Moore, a former Heritage Foundation economist who has been an unofficial adviser to Trump over the years. “The problem with higher mortgage rates is that it hurts the seller and the buyer, so the only person that helps is the bank. It’s a very negative thing.”