The stars were aligning for a strong spring homebuying season.
Ten-year Treasury yields had dropped below four percent, finally pushing mortgage rates below six percent. The first two jobs reports of the year were a mixed bag, with increases in average wages serving as a silver lining amid other negative metrics. Existing and pending sales ticked up in February, too, and sellers had started relisting their homes after a painfully slow winter, pushing active inventory up 5 percent year over year.
But the United States and Israel’s joint attack on Iran has become a black hole, steadily tearing at the supernova of excitement that had been growing among buyers and sellers who were ready to take advantage of affordability and other market gains.
“We kind of had a good thing going there for about a week, and now those stars aren’t aligned. Mortgage rates are picking back up,” Windermere Principal Economist Jeff Tucker told Inman. “I’m no geopolitical expert. Iran is laying mines in the Strait of Hormuz, and this raises questions about the chances of this coming to a close anytime soon.”
“I mean, even just a couple of days ago, oil futures were very quickly improving due to news that [President] Trump had apparently signaled the conflict was done. Now, I really don’t know. We’re on this yo-yo,” he added. “But we’re early in the spring homebuying season. There’s still the chance these impacts could be limited, depending on how quickly this gets resolved.”
Even if the conflict ends tomorrow, staving off the worst-case economic and housing scenario, Tucker and other economists said elevated gas prices are likely to stick around, impacting car-dependent markets more than walkable, public transit-heavy metros.
As of March 13, oil futures have risen 40 percent since the start of the conflict on Feb. 28. Gas prices don’t always move in sync with oil futures, a Federal Reserve Bank of St. Louis explainer said. However, gasoline prices tend to rise by about 2.4 cents for every $1 increase in the per-barrel cost of crude oil, which explains how average gas prices have risen from $3 to $3.60.
“This has happened in the span of a week and a half,” National Apartment Association VP of Research George Ratiu told Inman. “There’s no state right now that I think has gasoline under $3, which is significant.”
George Ratiu
Ratiu said the increase isn’t only significant at the pump, but will reverberate through the cost of food and other goods. Transportation companies will need to offset the increasing cost of diesel, which has risen to an average of $5.11 per gallon. Crude oil is also key to manufacturing a never-ending list of everyday items, including something as simple as a plastic water bottle.
“Oil underpins so much of economic activity and commerce,” he said. “It’s the fuel that basically transports goods, both across the oceans, across roads, to the last mile, right to our homes, nowadays, especially with e-commerce. Everything we do anymore is heavily dependent on the cost of fuel. And so with the cost of fuel spiking the way it has, it’s very likely to impact, ultimately, our individual and household bills.”
Although Americans will continue to feel the pinch of higher fuel costs — which are expected to last through 2027 — Tucker and Ratiu offered a balm for worried minds, saying that we’re unlikely to experience a 1970s-esque energy crisis.
In 1973 and 1979, the U.S. experienced two oil crises, spurred by the Yom Kippur War and the Iranian Revolution. During both crises, the country had to conserve gas, leading some states to mandate odd-even-day gas rationing. Both economists said that’s unlikely to happen now, as the U.S. has dramatically ramped up domestic production in states like Oklahoma, Texas and Louisiana.
“I think it is relevant that people fear that outcome,” Tucker said. “I think the likely impact is just higher prices, and nobody likes that. That’s still really bad news. But we’re a bit more insulated from needing to ration gas.”
Beyond putting more pressure on consumers’ pockets and sentiment, First American VP and Deputy Chief Economist Odeta Kushi said rising gas costs could also impact the housing market through higher material costs for homebuilders and higher inflation. If the conflict drags on through the spring and summer, Kushi said, the Federal Reserve may feel more pressure to control “inflation dynamics.”
“Monitoring key inflation reports like the [Personal Consumption Expenditures Price Index] and the [Consumer Price Index] is important. Those two key aspects of the economy will give a better understanding of what the Federal Reserve is likely to do with monetary policy,” she said. “The Fed will need to do a balancing act to keep inflation stable, alongside maintaining full employment on the labor market side.”
Tucker told Inman that the ongoing oil crisis complicates the balancing act Kushi mentioned. The Windermere economist said it’s difficult to know what the Fed will do, whether it’s holding off on planned rate cuts or actually “jacking up” interest rates. “It’s not everyone’s favorite,” he said of the option to raise rates. “But it’s the cure for a demand shock.”
Odeta Kushi
Although the mere idea of the Fed raising rates is enough to fling agents and consumers out of orbit, the economists said it’s important to remember that 10-Year Treasury yields are a better predictor of what may happen with mortgage rates. And right now, despite some volatility since Feb. 28, those yields are holding relatively steady at 4.25 percent.
That’s (disappointingly) pushed mortgage rates back above 6 percent — to 6.11 percent, to be exact. But that rate is still below the 2023 peak of 7.8 percent, and may be enough to keep homebuyers and homesellers who need to make a deal this spring in the market.
“I think that if we see it persist, we could start to see it impact the spring homebuying market,” Kushi said. “But right now, the 10-year Treasury isn’t moving around all that much. There’s still hope for spring. Our outlook, as we’ve been writing [reports], is more positive.”
Even if the conflict drags on, leading to some worst-case scenarios, Tucker, Ratiu and Kushi said it’s unlikely the market will fall apart. At the height of the Great Recession, Ratiu said there were still 4 million home sales, mostly from consumers who had to move due to life changes, such as a new job, getting married or needing more space for an expanding family.
“I don’t think that the market is going to in any way necessarily dry up. I think transactions will continue,” Ratiu said. “I think this market could be an opportune time because when you put everything together, there have been three years of sluggish sales activity. Sellers may be more motivated than ever to make a deal. And so far, at least, the indications are that there are many more people willing to come to market with properties this season.”
“So I still think the spring could be a great time for many people looking to buy,” he added.
