Want To Buy A House? Iran Is Making US Mortgage Rates Rise

By Douglas A. McIntyre Published May 19, 9:00AM EDT

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Want To Buy A House? Iran Is Making US Mortgage Rates Rise — © Feverpitched / iStock via Getty Images

If you plan to buy a house, you may want to hurry. A 30-year fixed-rate mortgage will cost you. The rate on these is 6.46%. They were 6.32% a month ago.

What happened? Iran. And it is for two reasons. The first and most obvious is that the war in Iran has disrupted oil-related product supplies. This includes gasoline in particular. As this causes prices to rise, the Fed doesn’t cut rates. Sometimes, it raises them. Currently, the Federal Reserve has paused rate cuts (almost certainly), holding the benchmark federal funds rate steady at 3.50% to 3.75%. Three months ago, many experts expected two more cuts this year.

Mortgage rates are not entirely based on the Fed, but they are closely tied to it. According to the Cato Institute, “The Iran war is the fourth significant supply shock in five years. Each time, the Fed chose the same posture: assess, equivocate, delay.” The best current example is that, as diesel prices rise, truckers try to pass the cost on to the places they deliver to. And those companies try to pass them along to consumers.

The second reason is very closely related. Much of the market expects the Fed to raise rates this year if the CPI rises closer to 5%. With energy costs rising, this is suddenly a possibility. Fed rates go up. Then mortgage rates go up. Part of the mortgage market anticipates that coming.

And then there are the sellers. Some are sitting on rates as low as 3%. If they sell, mortgage costs are rising if they want to buy new homes. Why not hang on to a rate that may not be matched by falling mortgage rates for years? So, the market gets locked up as supply dwindles.

Frequently, the media and economists comment on the fact that people in their late 20s and their 30s can’t afford homes the way the generations before them could. They become lifetime renters. The “homes for sale” inventory gets even tighter.

For each ship that sits for months outside of the Strait of Hormuz, mortgage rates tick up by the tiniest amount. But those tiny amounts are starting to add up.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.