Global Tensions Push Up Weekly Mortgage Rates

As the Iran war continues into its second week, markets remain unsettled by uncertainty over oil prices and inflation — two forces that ripple through the economy to affect mortgage rates.

The average rate on a 30-year fixed-rate mortgage rose seven basis points to 5.98% APR in the week ending March 12, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of a percentage point.

A conflict in Iran might seem far removed from your house hunt or refinance decision, but energy markets tie events overseas to costs much closer to home. In this case, attacks on commercial ships in the Strait of Hormuz — a key oil shipping route in the Persian Gulf — have raised fears of supply disruptions, sending oil prices higher. Rising oil prices can spike inflation, which in turn can push mortgage rates higher.

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Inflation remained steady in February

Today, we’re smack dab in the middle of two key inflation data drops: the Consumer Price Index (CPI), released March 11, and the Personal Consumption Expenditures (PCE) report, coming March 13. These reports measure inflation in subtly different ways, with PCE as the Federal Reserve’s preferred measure.

February’s CPI came in about as expected at 2.4%, showing inflation didn’t meaningfully speed up or cool down. But economic data works a little like a rearview mirror — it shows where we’ve been, not what’s directly ahead. February’s CPI and PCE are snapshots of the economy before the conflict in Iran began.

“This data provides a baseline from which to measure the impact of the war in Iran on energy prices and beyond,” says Elizabeth Renter, NerdWallet senior economist. “The longer the conflict continues, the greater the risk of it pushing overall inflation upward.”

The Fed faces a foggy road ahead

Keeping inflation in check is one of the Federal Reserve’s core responsibilities as the nation’s central bank. The Fed uses interest rate policy to cool the economy when prices rise too quickly. The Fed doesn’t set mortgage rates directly, but it does indirectly influence them by setting the federal funds rate.

Officials at the Fed will meet March 17-18 to review important economic gauges — the labor market and inflation — and decide their next move. In light of unexpected job losses and inflation that remains ever-so-slightly above their comfort zone, policymakers are widely expected to keep the federal funds rate steady.

“If today’s data was the end-all of inflation information when the Fed met next week, it wouldn’t change the discussion much,” Renter says. “But the central bank must keep ongoing threats to price stability in mind, and the current military conflict produces a threat of yet-unknown magnitude.”

In other words: The Fed’s balancing act is getting harder. A cooling labor market might prompt rate cuts, but the Iran war’s risks to inflation make it difficult to move too quickly. When the road ahead looks foggy, it’s often safer to ease off the gas than to make an abrupt turn — no matter who’s in the backseat begging for a rate cut.

Mortgage rates have held steady near 6% since January. Today’s mortgage rates are more than 60 basis points lower than this time last year. In a time of global uncertainty, no one can predict exactly what the markets will do. But if the Fed keeps a calm hand on the wheel, rates are less likely to veer off course — a good thing whether you’re hoping to buy a house or get a mortgage refinance this spring.

(Photo by Majid Saeedi / Getty Images News)

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