Oil prices also spike again as hopes of a ceasefire take a hit, potentially putting upward pressure on mortgage rates
Ten-year US Treasury yields, which strongly influence fixed mortgage rates, rose on Monday morning after Iran cut off negotiations with the US and vowed to completely close the Strait of Hormuz.
Those yields jumped above 4.5%, compared with a morning low of 4.45%, after Iranian state media reported Iran would no longer exchange messages with the US through intermediaries following ceasefire violations.
Yields are now inching back towards a five-day high, raising the prospect of higher mortgage rates amid a further deterioration in US-Iran relations.
The outbreak of the war in late February sent oil prices soaring and stoked fears of an inflation flareup, potentially putting Federal Reserve interest rate cuts on ice.
And on Monday, the price of oil was up by 8%, adding further pain for Americans at the pump and likely aggravating the headline inflation number further.
Messaging from Iranian state-affiliated news outlet Tasnim indicated hopes of a de-escalation between the two superpowers look increasingly distant.
The outlet said “no dialogue will take place” until Israel ends attacks in Lebanon and Gaza and removes troops from occupied areas. As well as moving to block the Strait of Hormuz – a key channel for global oil delivery – Tasnim said Iran had decided to “activate other fronts including the Bab al-Mandeb Strait”.
Latest hostilities pour cold water over prolonged ceasefire hopes
Last week, yields whipsawed amid continuing uncertainty over the future of the war – but it looks a safe bet that Treasurys, and mortgage rates, will be headed higher unless more positive news about talks to end the war emerge.
Federal Reserve officials have continued to debate a possible need for interest rate hikes. Last week, Michelle Bowman – the central bank’s vice chair for supervision – suggested that she could change her mind and vote for rate increases if energy shock and an inflation upsurge emerge from the war.
Mortgage brokers have sounded increasingly resigned to the likelihood that rates won’t dip below 6% between now and the end of the year, even if the war winds down.
But a prolonged ceasefire would still likely prove beneficial for the mortgage and housing markets, Realtor.com senior economist Joel Berner told Yahoo.
“I think what’s happening right now is a lot of buyers are kind of getting a double whammy. They’re experiencing higher mortgage rates that make their monthly payments higher on homes that they might be buying, and they’re also seeing prices of everyday living expenses going up,” he said.
“I think if we were able to see a ceasefire and see mortgage rates come down, we really have a much stronger case for the rest of the year in the housing market.”
‘Everything’s inflated’: War continues to push prices higher
For now, the rate outlook doesn’t look set to improve materially – and that could keep plenty of homebuyers on the sidelines.
Jaime Rhude of CrossCountry Mortgage told Mortgage Professional America the war had had a big impact in dimming buyer sentiment throughout the year to date.
“With the rates the way they are, the Iran war going on has really impacted rates. We’ve seen them going up, which then impacts affordability for people,” she said.
High oil prices and mortgage rates stemming from the conflict have only worsened what was for many people an already grim affordability picture.
“People are living on credit cards more. Everything’s inflated. Gas is high. Everything’s high because inflation is high right now,” Rhude said. “And that’s impacting people because their debt-to-income ratios are also high. I’m seeing all sorts of stuff right now.”
The US has yet to respond to Iran’s reported decision to block the Strait of Hormuz. Treasurys had dipped lower in recent days after President Trump appeared to suggest a deal to pause the conflict could be imminent, but hostilities recommenced after US and Iranian forces launched fresh attacks at each other.
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