Mortgage rates are bracing for another bumpy week as markets brace for the first inflation reading since the outbreak of the Iran war, with headline CPI expected to rise to 3.4% from 2.4% in February.
Mortgage rates are bracing for further turmoil as markets brace for the first inflation rate since the outbreak of the Iran war.
Chen Zhao |Credit: Redfin
According to Redfin economist Cheng Zhao, uncertainty is at a critical moment. Inflation figures released on Friday will reveal for the first time how the Iran war is reshaping prices.
Meanwhile, employment data has fluctuated widely from month to month, reflecting changes in Bureau of Labor Statistics measurements rather than an economic reversal, Zhao said.
Interest rates will depend on Iran war and Friday’s inflation report
Now in its sixth week, the Iran war remains the biggest driver of changes in mortgage rates. Mr. Zhao said new developments affecting energy prices will have the most immediate impact on rates.
Barring any new developments in the dispute, markets will next focus on March CPI data due out on Friday. Headline inflation is expected to rise to an annual rate of 3.4%, up from 2.4% in February and the first inflation rate since the start of the war.
Core inflation, which excludes food and energy prices, the Federal Reserve’s main focus, is expected to rise from 2.4% to 2.7% due to factors unrelated to the conflict.
The Fed will release personal consumption expenditures (PCE) data for February on Wednesday. Although PCE is the Fed’s preferred inflation measure, the announcement is unlikely to move the market. CPI and Producer Price Index (PPI) data for February is already available, and there is little new information for the market to digest.
Interest rates fell last week, pulling back from the previous week’s highs as investors unwound bets on a 2026 Fed rate hike.
Changes in employment data reflect changes in methodology
The Bureau of Labor Statistics’ monthly employment report represents three months of statistics and is difficult to interpret on its face. The economy added 160,000 jobs in January, lost 133,000 jobs in February and added 178,000 jobs in March.
Zhao attributed the variation to a change in methodology in the BLS birth-death model introduced in February 2026. The birth-death model estimates jobs added or lost in new or closed businesses that are not yet captured in the agency’s monthly employer surveys. The BLS updated the model because business openings and closings after the pandemic deviated from the historical patterns the model relied on, resulting in larger-than-normal errors in previous versions.
The updated model incorporates more recent data from monthly employer surveys and is more responsive in real-time. This responsiveness comes with a trade-off. Monthly numbers have become more volatile.
More reliable is a three- or six-month tracking average, Zhao said. By this measure, the labor market, while weak with few new jobs, has stabilized rather than worsened in recent months. Current levels of volatility are comparable to 2022 immediately after the pandemic, but are noisier than pre-pandemic data and 2025 numbers.
Number of old listings hits record high for this period
The turmoil is hitting an already tense housing market. More than half of U.S. residential properties have been sitting on the market for more than two months, with inventory totaling $347 billion, an all-time high for this time of year, according to Redfin data.
The backlog reflects an imbalance between supply and demand, with sellers significantly outnumbering active buyers in the market. Florida has the highest concentration of oldest lists among major states. California’s Bay Area has the lowest.
Baby boomers are building big houses, and millennial families are waiting.
Generational gaps in home ownership are exacerbating the inventory problem. According to Redfin, empty nest baby boomers own 28% of America’s large homes (defined as properties with three or more bedrooms), while millennial families with children own just 16%.
Baby boomers have limited economic incentives to downsize, and the inventory of small, one-story homes that are affordable to them remains low. Millennials, on the other hand, are grappling with both affordability constraints and a lack of large, affordable homes.
This difference applies to all major U.S. subways. Austin, Texas and Columbus, Ohio have the highest rates of home ownership by millennial families. Los Angeles has the smallest share.
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