Gasoline prices rise above $4 as the Iran conflict pushes up oil prices, raises mortgage rates and threatens housing availability in the crucial spring market.
Gasoline prices are above $4 a gallon for the first time since summer 2022, as the Iran war drives up global oil prices and adds new financial burdens to prospective homebuyers ahead of the spring homebuying season.
According to AAA, the national average price for regular gasoline reached $4.01 on Wednesday, crossing a key psychological threshold that could further erode consumer purchasing power at a critical time for the housing market. The national average for regular gasoline has increased by more than $1 since last month, according to AAA data.
Financial markets also showed signs of instability. Stocks rose on Tuesday after unconfirmed reports that President Trump was considering steps to quell the conflict, but both the Dow and S&P 500 remained on pace for their worst monthly performance since September.
In another mixed signal, the Conference Board’s latest consumer confidence survey showed that consumer sentiment actually rose slightly in March despite the war-induced oil price shock.
Taken together, the data paint an increasingly uneven picture heading into the crucial spring home buying season. Mortgage rates have risen sharply in recent weeks as oil prices rise, threatening to weaken demand just as the market enters its busiest period.
Mixed signals from DC cause market to speculate
A year ago, hopes for a strong spring housing market were dashed when mortgage rates spiked following President Trump’s tariff announcement in early April, rattling the market and reigniting fears of a broader economic slowdown.
This year, external shocks are once again shaping the outlook. The trajectory of the housing market and the broader economy now largely depends on how long the Iran war lasts. The conflict has already caused oil prices to rise sharply, reigniting inflation concerns and raising mortgage rates as the spring buying season begins.
President Trump’s war plans remain highly uncertain. Stocks rose on Tuesday after the Wall Street Journal reported that President Trump told aides he was willing to end the conflict even if the Strait of Hormuz remains largely closed to commercial shipping.
In a separate interview with the New York Post, President Trump predicted the war would end soon and suggested that other countries would ultimately be responsible for reopening the vital sea route, which handles about 20% of the world’s crude oil shipments.
But the United States has no clear timeline for ending the conflict, and Iranian officials have indicated they will not participate in negotiations. Meanwhile, reports citing U.S. officials indicate that military buildup continues in the region, including the arrival of troops from the 82nd Airborne Division. Some see the move as a pressure tactic to force Tehran into a settlement, but there is growing speculation that it could escalate the conflict.
“Affordability is now an elusive dream.”
Jeff Sieka, founder of Circle Squared Alternative Investments, appeared on Barney & Co.’s FOX Business on Monday, describing rising energy costs as “kryptonite” for housing and warning that the market is currently facing multiple economic pressures.
“What we wanted was for interest rates to go down and mortgages to become more affordable,” Mr. Sica said. “Right now, when the price of oil goes up, the price of everything goes up, so we have a double negative wave.”
Rising energy costs not only impact household budgets, but can also impact broader financial markets, with a direct impact on mortgage rates. Sica pointed to changes in the 10-year Treasury yield, a key benchmark for mortgage pricing, and said volatility related to inflation expectations and energy prices could push up borrowing costs.
“For first-time homebuyers, getting an affordable home is an impossible dream until oil prices fall,” Sika said.
Mortgage rates remain one of the most important variables in housing demand, and even small increases can significantly reduce buyers’ purchasing power, especially for those already suffering from soaring home prices.
The diesel dilemma facing home builders
Beyond financing costs, Sica highlighted the role energy prices play in driving up the cost of new home construction, a key factor in addressing the country’s supply shortage. Diesel fuel in particular plays a vital role in the construction ecosystem, from transporting materials to powering heavy machinery.
“Think about the importance of diesel fuel in trucking,” Sica says. “To make housing more affordable, we need to build more housing, and all of those materials are transported by trucks, and the fuel in the trucks is diesel.”
For developers, rising fuel costs translate directly into project budgets, impacting everything from raw materials to labor logistics. “When we enter into a development agreement, we look at the overall cost, and diesel affects everything,” he added.
Expensive feedback loops
Rising costs could prompt developers to delay or scale back projects, further constraining housing supply while inventory remains tight in many markets.
The result is a negative feedback loop, Sika suggested, where rising energy prices simultaneously raise construction costs and mortgage rates, making it harder to both build and buy homes. “The construction industry will slow down,” he said.
This slowdown could prolong the current imbalance in the housing market. In the housing market, limited supply and tight affordability continue to define conditions for what is typically the industry’s busiest period.
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