At this point it seems abundantly clear.
De-escalate and mortgage rates fall.
Ratchet up the war talk and mortgage rates go up.
The same seems to go for the wider stock market.
Which begs the question, when do we just cut our losses and make a deal?
Mortgage Rates Clearly Like Pacification
If you pay attention to the news around the Iranian conflict, you’ll see a very clear pattern.
When there’s news of a peace deal or de-escalation, bond yields and mortgage rates tend to fall.
Conversely, when there’s talk of some big new strike or deadline before another attack is launched, bond yields surge higher and so too do mortgage rates.
Likewise, the stock market tends to surge when there are signs of an accord, and plunges when it sounds like things are getting worse.
So clearly the market is being very upfront in saying it wants a deal. It wants peace.
And given the midterm elections are right around the corner, there’s also the immense political stakes.
President Trump doesn’t want to go into November with a war still raging, with oil prices (and mortgage rates) still elevated.
Instead, he could paint the whole thing as a win if we simply got back to the pre-war status quo.
Or even a slightly less-good situation that simply isn’t as bad as things are now.
In other words, there’s a ton of incentive for the administration to right the ship here and get us back on track as opposed to pursuing new escalations.
How to Make a Loss Look Like a Win
The question though is how they accomplish a peace deal that doesn’t look like a loss.
U.S. Secretary of State Mark Rubio warned that “Iran’s demand to control and collect tolls in the Strait of Hormuz would threaten the world’s economy and set a precedent that could be repeated elsewhere in the world.”
Simply put, if we give Iran the OK to charge for safe passage, with the alternative being violence, other key supposed “international waterways” could face the same fate.
That’s not exactly the win the administration would be looking for.
There’s also talk of a so-called “service fee” that would “cover the environmental impact of the shipping, security for the cargo ships and tankers, and staffing.”
Maybe that would be more acceptable, though it sounds kind of like the same thing, a toll.
In any case, there’d likely be a way to package it all so both sides could walk away at least somewhat happy.
And then we could get back on track to those pre-war days when the economy was looking fairly decent.
Is This the Only Way Back to 5% Mortgage Rates?
Ultimately, this looks like the only viable path back to the 5% mortgage rates we had at the end of February and early March of this year.
After all, not much else changed since that time. Inflation was moderating, labor was mostly stable.
It was really only the surge in oil prices related to the unexpected war that resulted in mortgage rates rising about 0.75%.
Take the conflict out and perhaps we’d still be in the 5s today, or not far from it.
Now if the war does drag on, it gets harder and harder to return to those favorable levels.
At that point, you might need a recession to get lower mortgage rates. And that’s clearly not the preferred method.
So my hope is that we find peace soon, not just for mortgage rates, but for everything else at stake that is much, much more important.
The good news is we know what’s necessary to get us there. We just need to do it and stop all the back and forth nonsense.
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