Few people who bought a home in late February had the Strait of Hormuz in mind. Many of them are now.
In the weeks since the Iran conflict began, the U.S. residential real estate market has absorbed a complex set of shocks, including soaring oil prices, rising inflation, fluctuating interest rates, and a credit crisis creeping onto household balance sheets. All of this can be traced back to the war and the resulting turmoil in the global energy market.
The spring housing market, historically the busiest sales period of the year, disappointed in many regions. Mr. Inman spoke with mortgage professionals, credit experts, and real estate agents across the country to understand what’s going on and what buyers, sellers, and agents should expect.
“Unseasonably cold spring”
The mechanism by which military conflicts in the Middle East lead to higher monthly mortgage payments is faster and more direct than most people realize.
“Right after the conflict broke out, we saw a huge spike in mortgage rates,” David Samuels, a real estate agent at Keller Williams Westlake Village in California, told Inman. “This is due to rising oil prices, and rising inflation is directly proportional to rising interest rates. Since interest rates rose above 6%, the housing market has slowed significantly and this year has been an unusually cold spring.”
In other words, the spring 2026 housing market had all the ingredients for a breakout season. Then Iran happened.
When the dispute broke out, mortgage interest rates had just fallen below 6% for the first time in four years, rising to 6.45%, shaking buyer confidence. Existing home sales have fallen to a nine-month low, according to the National Association of Realtors.
However, the market has not completely stalled. Pending sales are near the highest pace since the end of the pandemic boom, and listing views on Zillow are up 32% year-over-year, according to Zillow’s March market report.
Inventory is finally increasing and even homeowners with interest rates below 5 percent are starting to get listed. A Coldwell Banker survey of more than 700 agents found that 35% of current sellers have interest rates below 5% and are still listed.
Prices are also being eased. According to Realtor.com’s April report, the national median list price is down 1.4% year-over-year for nine consecutive months, and the typical home is on the market two days longer than a year ago. This is the 25th consecutive month that the pace of sales has slowed compared to the same month last year.
The situation is divided regionally. A Coldwell Banker study found that 70 to 74 percent of agents in the Midwest and Northeast characterize their market as a seller’s market. In the South and West, 46 to 56 percent of agents say it’s a buyer’s market.
It’s not the breakout spring many were hoping for, but it may be the most functional market in three years.
A chain reaction affects every transaction.
Cody Schuiteboer, president and CEO of Best Interest Financial, is tracking the sequence of events precisely. Brent crude rose about 73% from a prewar price of $73 a barrel to a postwar high of $126 a barrel in late April.
Bond investors anticipating inflation sold long-term government bonds, pushing the yield on the 10-year Treasury note to about 4.4% from just under 4% in late February. The conflict reached its peak in late March, with no signs of resolution.
Mortgage rates rose in lockstep, rising from 5.98% on Feb. 27 to 6.30% for the week ending April 30, according to Freddie Mac, and to about 6.45% on April 29 after the president indicated the naval blockade against Iran would continue for some time.
For a $360,000 loan, an increase of almost half a point would add $109 per month, $1,308 per year, or approximately $39,000 in total interest over the life of the loan. Scheiteboer estimates that tens of billions of dollars in net assets are being transferred from buyers to bondholders every month in about 4 million transactions expected this year.
Don’t expect the Fed to come to the rescue. With the probability of a recession around 30%, unemployment expected to rise to around 4.4% to 4.5% by the end of the year and inflation approaching 2% to 3%, the central bank’s hands are effectively tied, Scheiteboer said.
“Everyone has to act on the assumption that an interest rate environment of 6% or higher will be the norm throughout this year,” Scheidboer said.
Credit score as collateral damage
While rate hikes are reflected in all loan estimates, Ali Zane, CEO of IMAX Credit Repair Services and a former mortgage bank director, argues that there is a second, less visible crisis unfolding that will outlast the dispute itself.
Zane’s office said it has seen a consistent pattern across mortgage applicants’ credit reports since late February: rising balances, rising utilization rates and declining FICO scores. It’s not a 5 or 10 point difference, it’s an average difference of 30 to 60 points.
Gasoline prices nationwide averaged more than $4.30 per gallon as of the end of April, and with grocery and utility bills rising by nearly 3% amid widespread inflation, financing costs are rising across the board, forcing households to absorb excess spending by charging credit cards with average annual interest rates of about 21% to 22%.
As your utilization ratio increases, especially above 30%, it starts to weigh more heavily on your FICO score, which is used to determine mortgage eligibility, and regardless of the ratio level, higher balances represent a greater risk to lenders.
Zane told Inman, “The dispute is not just pushing interest rates up to 6.30% for mortgage buyers.” “In many cases, if a buyer’s credit is compromised, they will not be able to fully qualify.”
The numbers make the stakes tangible. Borrowers with a FICO score of 760 qualify for today’s prevailing interest rate of 6.30 percent. If the same borrower drops 60 points to 700 points, the interest rate could be between 6.63 and 7 percent. And businesses with less than 20% down payment will receive an even higher PMI premium.
For a $360,000 loan, the difference between 6.30 percent and 7 percent adds up to $167 per month, $2,004 per year, or about $60,000 over 30 years, before taking into account the additional PMI costs, and the difference could grow even further. The interest rate environment accounts for a significant portion of this increase, but for borrowers whose credit scores have declined, the damage to their interest rate tier could be the greater of the two costs.
Zane also warns of debt and income issues that can erode mortgage eligibility. He has seen his customers’ non-mortgage DTI ratios increase significantly since late February due to higher credit card balances, higher minimum payments, higher auto loan debt and underwriters pulling more BNPL installments from bank statements.
Households that moved from a mortgage-free DTI of 28% in January to 33% by April are not necessarily taking on new debt. In fact, rising gas, grocery, and utility costs have led to more credit card spending, and the minimum payment amount is rising as well as the balance. As a result, many households unknowingly lose approximately $40,000 to $65,000 in mortgage approval capacity, depending on household income, Zane said.
Buying a home has become a gamble
Beyond interest rates and credit, Samuels points to a second trend that defies easy quantification: perception. Geopolitical uncertainty has kept a significant proportion of potential buyers on the sidelines entirely, he said.
“War can break out at any time and for any reason, so it’s impossible to predict how the market will deteriorate or improve,” Samuels said. “For the vast majority of people, buying a home is just a gamble.”
The advantage for aggressive buyers is extraordinary bargaining power. “Especially among first-time homebuyers, we find that we have a lot of leverage in negotiations because there’s no one else,” Samuels says. “Just last week, I had a client appraise his home for $60,000 more than the purchase price.”
What past Middle East conflicts suggest
Comparisons to the 1973 oil embargo have been widely circulated since the conflict began. Scheidboer argues that the 1990 Gulf War is the closest historical parallel for housing.
At that time, oil prices rose about 75% in two months, transaction volumes fell (existing home sales were down 4.3% for the year), price growth stalled, and the market slumped until oil prices fell and the economy recovered from the recession in 1991. It is worth noting that the housing downturn during this period was not solely caused by the Gulf War, but was amplified by the existing real estate bubble and the broader recession.
“The important thing is that the houses didn’t collapse, they froze,” Scheidboer said. “I believe that is the course of action we should expect in 2026, unless Iran manages to reopen the Strait by midsummer.”
Zane goes back even further, from 1979 to 1982, after the Iranian revolution. This was a period when mortgage rates rose to their 1981 annual peak of 16.64%, and weekly rates briefly exceeded 18% under Paul Volcker’s anti-inflation campaign.
The total number of bankruptcy filings increased approximately 15 percent, from approximately 331,000 in 1980 to 380,000 in 1982, and continued to increase rapidly until the mid-1980s.
Zane doesn’t expect those conditions to return. His argument is narrower: every protracted Middle East energy crisis since 1973 has caused credit-level damage to consumers that exceeds the conflict itself.
“Borrowers who maintain their credit records over the next 24 months will be in a significantly better position regardless of the outcome of the dispute,” Zane said.
Buy Wisely, Fix Your Credit, Price Right
For buyers, Scheidboer recommends locking in the rate immediately after signing the purchase agreement. Fluctuations in interest rates due to fluctuations in the oil market, with daily fluctuations of more than 25 basis points on the wildest days, make floating exchange rates a risky bet.
He also advises buyers to take seller-paid buydowns seriously, which can save some buyers more than $200 a month, and to reconsider the 7/6 ARM if they plan to move or refinance within seven years. But he added that in this environment, ARM rates can be as high as or higher than 30-year fixed rates, so buyers should check current spreads with their lenders.
Zane’s advice focuses on credit hygiene. You can earn 30 to 50 FICO points within 30 to 60 days by reducing your utilization to less than 10% on all your credit cards before applying.
Zane said don’t close old cards, even if they’re unused. And pull all three credit reports now to dispute any mistakes. The FTC found that 26% of consumers identified errors on their credit reports that could affect their score, but the rate of errors severe enough to lead to worse loan terms was closer to 5%.
This figure comes from a 2013 study, which remains the most comprehensive government data on the subject. Either way, errors are common, so it’s worth the effort to check before applying.
For sellers, Mr. Scheidboer is frank: Repricing has already occurred, whether the seller acknowledges it or not. “If anyone can get this market wrong, it’s the sellers,” he said. “One might think that higher interest rates would mean fewer buyers, but the reality is more complicated.”
Mr. Scheiteboer said there are still plenty of buyers, but the homes they are buying are worth $40,000 to $60,000 less than the homes they would buy at a 5.98% mortgage rate. In other words, the home that was valued at $475,000 in February has now been revalued at $440,000 based on the new financing costs.
“Sellers who don’t take this into account will keep their properties on the market throughout the spring, and homes that remain on the market through the spring tend to sell for less in the summer,” he said. “Over the past 60 days, the fastest movers have been sellers that factored in this pricing move.”
Email Nick Pipitone
