This Week In A Nutshell: The Iran War continues to fuel market volatility as it enters its fourth week, particularly as the White House signals it is seeking a resolution.
Upcoming Attractions
This week will feature many speaking engagements from various Fed officials, but key economic data releases will be scarce. The primary focus for markets will continue to be on the situation in the Middle East, specifically the timeline for resuming oil shipments from the Persian Gulf. Rates may also come down this week if Fed officials, in their speeches and interviews, attempt to change the rather hawkish impression left after last week’s press conference with Fed Chair Powell.
Last Week’s Highlights
Last week, daily average mortgage rates jumped from 6.36% to 6.53% as 10-year Treasury yields increased from 4.22% to 4.39%. Much of the movement came late in the week, starting with the Fed’s Wednesday conference. Rate movement intensified on Friday after President Trump said the U.S. was sending thousands of Marines to the Middle East. The Fed press conference nudged rates higher as Fed officials were seen as setting a high bar for any rate cuts this year. By Friday, the fed funds futures market was pricing in 5 to 10 bps of rate hikes in 2026, and no rate cuts until late into 2027. On February 27, when mortgage rates briefly touched 5.99%, investors were pricing in 60 bps of rate cuts this year. Sentiment has swung very dramatically in the last four weeks.
Diving a Little Deeper
The main question on everyone’s mind in housing: Will mortgage rates keep going up, or will they come back down to the lows we saw in late February? There are many layers of uncertainty, including the duration of the Iran war and how the economy reacts, along with the Fed’s response to changing economic conditions and the market’s forecasts for Fed policy.
Economists widely expect that these oil price spikes won’t lead to more restrictive Fed policy. Economists believe the Fed will be more worried about the risk of labor market deterioration than inflation with higher gas prices. However, investors interpreted Fed Chair Jerome Powell’s statements last week to mean the Fed is unlikely to cut interest rates this year, particularly his remarks about needing to see an improvement in inflation. Indeed, markets are now pricing in a 20% chance of a rate hike this year, and 0% chance of a rate cut.
It is definitely possible markets have overshot their expectations for the Fed, meaning rates are much higher right now than they need to be. To that point, Chair Powell actually downplayed the risk of a hike last Wednesday even while cautioning that the timing of the next cut is uncertain. The bar for the Fed to hike rates for the first time since July 2023 is high, and we’re unlikely to hit it given general macroeconomic conditions.
But whether markets have swung too far doesn’t matter for the housing market. Mortgage rates are high, and that is what consumers are experiencing. The housing market was already fragile to start the year, despite improving affordability. Housing demand was already underperforming where mortgage rates were because of lingering lock-in effects and labor market weakness. And this current bout of volatility couldn’t have come at a worse time. Much like last year’s Liberation Day, the war threatens to derail the start of the spring homebuying season.
Redfin Housing Market Reports
The Top 20% of Earners Hold Nearly 60% of America’s Real Estate Wealth
- By comparison, the bottom 20% of U.S. earners hold just 5% of real estate wealth.
- The average rate for an ARM so far this month is 5.51%, compared with a 6.19% average for a 30-year fixed rate mortgage.
- The typical homebuyer using an ARM takes on a monthly payment of $2,578, down 7% from last year.
- Today’s ARM discount is big enough that buyers should talk to their lender about whether it’s the right option for them. ARMs aren’t nearly as risky as they once were; they come with interest-rate caps and protection for borrowers.
Homebuyers Can Afford to Take Their Time Heading Into Spring 2026
- The typical home that went under contract in February spent 66 days on the market—the slowest February pace in a decade.
- The typical buyer scored 1.8% off the list price—the biggest February discount since 2023; sellers outnumber buyers, giving buyers negotiating power.
- Pending home sales and new listings both inched down last month, while home prices inched up.
There Are 630,000 More Home Sellers Than Buyers—the Biggest Gap on Record
- When sellers outnumber buyers, the buyers who are in the market have bargaining power. In other words, it’s a buyer’s market.
- The strongest buyer’s markets are in the South, while the strongest seller’s markets are in the Northeast.
