Typically, mortgage rates fall shortly after geopolitical incidents unfold.
This time, they bounced higher on the Iran attack news, with 10-year bond yields climbing a big nine basis points on the day.
That will result in higher 30-year fixed mortgage rates just days after a joint U.S.-Israeli operation took out Iranian leadership.
The unexpected move led to an immediate increase in oil prices as stability in the Middle East is once again threatened.
Often, investors will seek so-called “safe haven” assets like government bonds when these things happen, but so far that hasn’t been the case.
Mortgage Rates Back Above 6% on War Rumblings
Mortgage rates are back above the key 6% threshold to start the week after experiencing their best week in years.
The 30-year fixed had been sub-6% for much of last week, reaching levels not seen since mid-2022 by some measures.
But now we’re back to a 6-handle as the conflict in the Middle East plays out.
The initial reaction by investors was to sell pretty much everything, including stocks and bonds.
Often, investors will make the “flight to safety” trade and move from high-risk stocks to low-risk bonds. But today it’s been a wider selloff.
At the same time, MBS prices are sharply lower, which will translate to higher mortgage rates for consumers.
Per Mortgage News Daily, MBS prices were “significantly weaker” to start the week, with “strong downward movement” likely to push mortgage rates up quite a bit higher.
And indeed they were back up to 6.12%, a big one-day move higher (+ 13 bps) that puts them firmly back into the 6s.
The company’s prior read from Friday was 5.99%.
They could stay there for some time as well, unless we see that typical move into bonds like we usually do when there are world conflicts.
Spiking Oil Prices Puts Pressure Back on Inflation
The issue this time is oil prices have surged higher in the wake of the conflict as major supply disruptions are expected.
For example, Saudi Arabia’s largest oil refinery halted production after it was hit by a drone.
And Iran reportedly shut down the Strait of Hormuz, which is referred to as the world’s most important oil route.
That led to a big jump in oil prices, which can/will trickle down to higher prices at the pump, along with higher prices on goods as increased transportation costs are passed along to consumers.
This can exacerbate inflation, which has been an ongoing battle and one we seemed to finally be making headway on.
Inflation is the enemy of bonds, so if this persists, expect mortgage rates to be higher all else equal.
But that’s the big question. On the one hand, bond yields (and mortgage rates) are a lot higher today.
On the other, they remain near lows not seen since 2022.
So while today and perhaps this week might be a setback, if you zoom out, they’re still at the lowest levels in years.
However, this level of global instability could dampen the home buying mood so it’s an intangible we need to consider as well, rates aside.
Will Mortgage Rates Resume Their Move Lower Soon?
Like prior conflicts, this situation could prove to be short-lived, and mortgage rates may resume their path lower.
While bond yields jumped today, they had fallen quite a bit leading up to this incident.
In fact, the 10-year bond yield was hovering around 4.30% a month ago, and fell below 4% last week.
Even after today’s move higher, it remains fairly close to 4%.
Similarly, the 30-year fixed, which had been priced around 6.20% a month ago, had fallen to around 6%.
So despite rates rising about .125% today on the news, we remain in a good place and the fact that bonds had already been on a winning streak might explain the pullback today.
That remains to be seen, and in the meantime you’ll need to be extra cautious if floating your mortgage rate.
Expect a lot of volatility with mortgage rates as this very fluid situation continues to develop, but remember that the 30-year fixed remains near a 3.5-year low, which is the big silver lining.
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