US Home Sales Hit Nine-Month Low as Iran Conflict Spikes Mortgage Rates
The U.S. Housing market, which had shown signs of a potential “reset” for 2026, has hit a sudden roadblock. In March, existing home sales plummeted to a nine-month low, leaving both buyers and sellers effectively frozen. While a dip in mortgage rates had briefly injected momentum into the market, the eruption of military conflict in Iran has reversed those gains and clouded the outlook for the spring home-buying season.
The Mortgage Rate Shock
Just before the conflict began, the U.S. Housing market experienced a long-awaited dip in borrowing costs. Mortgage rates fell below 6% for the first time since 2022, sparking hopes for a busy spring. However, that window of opportunity closed quickly.
According to data from Mortgage News Daily, the average rate on a 30-year fixed loan stood at 5.99% one day before the strikes began; it is now hovering around 6.5%. This sharp increase has immediate consequences for consumer behavior. The Mortgage Bankers Association reported that applications for home purchase mortgages dropped 5% in a single week as rates climbed.
Why the Market is Freezing
The slump in March sales isn’t solely about interest rates, though they are a primary driver. Several overlapping factors are contributing to the current stagnation:
- Tight Inventory: A lack of available homes continues to limit the number of transactions and tighten supply.
- Inflation and Energy Costs: New uncertainty surrounding energy prices and inflation is complicating the economic outlook.
- Labor Market Concerns: There are growing fears regarding the labor market, including the potential for a slight uptick in the unemployment rate as higher prices reduce consumer spending power.
2026 Forecasts: Three Potential Paths
Economists are now adjusting their predictions based on the duration of the conflict. Mischa Fisher, chief economist at Zillow, originally forecast a 4.3% gain in existing home sales for the year. He has since modeled three scenarios based on when the current volatility ends:
| Scenario: Conflict Ends By… | Projected Annual Sales Gain |
|---|---|
| End of April | 3.48% |
| July 1 | 2.33% |
| September 1 | 1.21% |
Meanwhile, Daryl Fairweather, chief economist at Redfin, suggests the market is in a “slow transition to a healthier market,” projecting 3% more home sales and 1% price growth overall for 2026, though he notes the Iran conflict currently adds significant volatility.
Key Takeaways for Buyers and Sellers
- For Buyers: Affordability has taken a hit. Those who were waiting for rates to drop below 6% now face a landscape where rates have climbed back to 6.5%.
- For Sellers: The “spring rush” has been dampened by buyer hesitation and economic uncertainty.
- The Critical Variable: The health of the job market remains a key driver. If employment data weakens, some experts, such as LoanDepot’s Jeff DerGurahian, suggest mortgage rates could fall further, potentially unlocking more housing activity.
Frequently Asked Questions
Will home prices drop because of the conflict?
While sales volume has slumped, price growth is expected to be slow. Redfin is currently projecting 1% price growth during 2026.
What is driving the rise in mortgage rates?
The rise is primarily fueled by increased concerns over inflation and the economic instability resulting from the U.S.-Israeli war in Iran.
Is the 2026 housing “reset” still possible?
Yes, but it depends on the timeline of the conflict. If volatility subsides by the end of April, sales could still rise by 3.48% compared to last year.