Iran Conflict Sends Oil Prices Up in Troubling Sign for Mortgage Rates

The U.S.-Israeli bombing campaign against Iran is putting upward pressure on mortgage rates, but whether the effect is a temporary blip or a durable trend remains to be seen.

President Donald Trump announced the joint strikes early on Saturday, saying the action was necessary to prevent Iran from obtaining nuclear weapons. Iran's Supreme Leader Ayatollah Ali Khamenei was killed in an early round of strikes on Tehran.

On Monday, as the bombing campaign entered its third day, oil prices surged at the market open, with Brent crude rising more than 8% and approaching $79 per barrel. Meanwhile, the major stock indexes tumbled, with the Dow Jones Industrial Average shedding 282 points, or 0.6%, at the opening bell.

For mortgage rates, the impact on bond markets and the 10-year Treasury yield is key. The Iran conflict raises two opposing effects for bonds: safe-haven investing and renewed inflation fears.

In times of uncertainty, investors often shift money out of stocks and into bonds, driving prices up and yields down, easing pressure on mortgage rates. However, spiking oil prices raise the prospect of higher inflation, which sends bond prices lower and yields higher.

"We are seeing the 10-year Treasury yield rise sharply today, which implies that fears surrounding inflation are the stronger effect," says Realtor.com® senior economist Joel Berner. "The conflict has already started to stymie supply chains and send oil prices higher."

Although Iran produces only about 3% of the world's oil, about 20% of global crude oil shipments pass through the narrow Strait of Hormuz near Iran, raising the prospect of shortages or vastly higher shipping costs if the conflict drags out.

"Oil costs make their way into the prices of nearly every physical thing in the economy, so debt market investors are spooked by looming inflation and are demanding higher yields on Treasury bonds," says Berner.

The 10-year Treasury yield climbed sharply on Monday morning, rising 9 basis points and taking the key benchmark back above 4%. It may presage an upward turn for mortgage rates, which last week reached a three-year low of 5.98%, according to Freddie Mac.

"Up until this point in 2026, mortgage rates had been on a consistent and relatively speedy decline," says Berner. "This disruption to the bond market certainly has the potential to undo those gains, and if we do see persistent inflation resulting from the conflict, this could be the start of an upward trend rather than just a one-off bounce-back."

The economist adds that the extent of the impact on mortgage rates likely depends on the extent and duration of the conflict, and how well global supply chains can react to the shutdown in the Strait of Hormuz.

So far, four U.S. service members have been killed in the conflict, which American war planners have dubbed Operation Epic Fury. It remains unclear whether the campaign will remain relatively brief or widen into an ongoing regional conflict.

Trump has said the U.S. objectives include wiping out Iran's missile capabilities and navy, preventing Iran from obtaining nuclear weapons, and cutting off Iran's sponsorship of terror groups throughout the Middle East.

"We continue this mission with ferocious, unyielding resolve to crush the threat this terrorist regime poses to the American people, and a threat indeed it is," Trump said on Monday. "We have the strongest and most powerful by far military in the world, and we will easily prevail."

Homebuilder stocks fall after Iran strikes

Stocks of major homebuilders tumbled on Monday as investors gauged the risk of higher interest rates putting a damper on the sector.

The S&P Homebuilders Select Industry Index, which tracks major public homebuilders, slid more than 2% on Monday morning.

Homebuilder stocks remain highly sensitive to interest rates, and inflation fears stemming from the Iran conflict may be weighing on the sector.

The outlook for Federal Reserve rate cuts this year grew more pessimistic following the strikes on Iran, with rising oil prices potentially stoking inflation and undermining the case for lower rates.

Financial markets now assess a 53% chance that the Fed will leave rates unchanged through the June meeting, up from just 43% before the strikes began, according to CME FedWatch.

If correct, that would mean three more Fed meetings—in March, April, and June—with no change in the benchmark rate, with rate relief potentially delayed until July.