Sadly, there’s another conflict taking place, this time between the U.S., Israel, and Iran.
It has already spilled over into neighboring Gulf countries, and has sent shock waves across the globe.
Unfortunately, war, or even just a military strike, is not without its consequences. Aside from the human toll, there’s a good chance world economies will also take a knock.
For starters, oil prices are expected to skyrocketed on supply concerns, as the Strait of Hormuz is reportedly closed.
As a result, gas prices will likely tick higher, meaning businesses will spend more, and consumers will pay more at the pump. But what about mortgage rates?
War Means to Seek Shelter and Hunker Down
- When a war breaks out or threatens to break out most people seek shelter both literally and figuratively
- For investors that means ditching risky stocks and jumping into bonds
- Bonds are considered a safe haven during uncertain times like these
- This can push down their yields (aka interest rates) and lower mortgage rates too
When a war breaks out, or even fears of a war, investors tend to seek shelter for their assets (too), a safe place to earn a return and avoid a collapse.
The obvious place is always bonds, and the number one place to flee from is the stock market.
The stock market has already taken a dive recently (due to AI) and this could lead to even bigger losses.
Investors take the “flight-to-quality,” exchanging high-risk stocks for relatively low-risk, safe haven assets like gold and Treasury bonds.
This phenomenon explains why the 10-Year Treasury yield fell after previous conflicts, the latest being the Israel-Hamas war and prior to that the Syrian conflict and ongoing Russia-Ukraine war.
Long story short, bond yields and mortgage rates tend to mirror each other in terms of direction, so if yields fall, rates fall, and vice versa.
This might be what we’ll see next week if the tensions stay at a boiling point. Even before the weekend strike, interest rates on the 30-year fixed were at the lowest levels since 2022.
And the 10-year bond yield had already sunk below 4% due to wider economic concerns surrounding AI taking our jobs.
On the surface, this is great news for prospective home buyers (and those who decided to float), but it’s bad news for the victims of war and the rest of the world.
It could also be bad news for consumers at large, whether it’s higher gas prices and/or a sign if rates are heading back down it means things aren’t going as planned for the economy.
Mortgage Rates Tend to Go Down Initially After a War or Major Conflict Breaks Out
When Russia forcefully annexed Crimea back in early 2014, the 30-year fixed fell about 25 basis points from roughly 4.50% to 4.25%.
Rates fell by a similar amount after the United States got involved militarily in the Syrian civil war in September 2014, from 4.25% to just under 4%.
After the Hamas attack in October 2023, mortgage rates fell sharply lower as well, dropping about 20 basis points day-to-day.
But it was short-lived and they resumed their ascent shortly thereafter due a hot inflation report.
Lately, mortgage rates have been trending lower and this could give them an additional nudge toward the lowest levels since early 2022.
However, it could also exacerbate inflation concerns (related to oil prices and government spending) and also give the Fed pause regarding additional cuts.
So if you do see a big drop in mortgage rates on Monday, you might want to pounce!
Mortgage Rates Are Very Difficult to Predict, Similar to War
Ultimately, rates will be driven by what transpires over the next weeks and months, both in the Middle East and the wider economy.
As noted, mortgage rates have already been on a downward trend this year due to AI fears and lofty stock market valuations.
This was the situation even before the U.S.-Iran conflict got underway and could continue to be the bigger driver of rates if we zoom out.
In the meantime, the Fed may be forced to hold off on any planned rate cuts as this situation develops.
But it will depend on what happens in the interim, and how volatile things become in Iran and elsewhere.
If you’re shopping for a home loan, expect a wide range of rates between mortgage lenders, as each may interpret the news differently. In other words, shop around!
Also be careful when locking or floating, as there might be wild swings as developments unfold. In fact, we’ve already seen rates seesaw back above 6%. Then back below.
Though this news could push them deeper into the 5s, at least initially. So be ready to lock if you like what you see!
Remember, lenders often take their time lowering interest rates out of an abundance of caution, but are happy to raise them at a moment’s notice.
To sum things up, if investors remain skittish and fall back in love with bonds, mortgage rates should decrease as well, which is good news for at least one group of individuals out there.
Read more: 2026 Mortgage Rate Predictions
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.