Treasury yields are whipsawing and mortgage rates climbing, keeping market activity subdued. But an end to the current conflict could spur new optimism, according to a mortgage CEO
The war in Iran looks set to continue for at least another few weeks, if President Trump’s Wednesday night address to the nation is anything to go by – and that could have a big say in determining the trajectory of the US’s spring housing market.
Oil prices jumped and stocks tumbled amid fears of a fresh escalation in the conflict, although Treasuries – after posting a big spike during Trump’s remarks – moved lower on Thursday morning.
The war, which began at the end of February, has already had a negative impact on the national housing outlook.
Mortgage rates have shot upwards, rising above 6.5% last week according to the Mortgage Bankers Association (MBA), while economic uncertainty and higher oil prices are keeping many potential homebuyers on edge.
The prospect of another several weeks of war, then, is bad news for the housing and mortgage markets. But while the short-term picture is grim, mortgage professionals see better days ahead if the conflict does wrap up before the middle of the year.
“It all depends on [Iran] right now,” Loan Factory chief executive officer Thuan Nguyen (pictured top) told Mortgage Professional America. “Because of the war, we’ve seen the rates jump so high. And it’s already getting worse out there. Rates are so high, and business is slowing down.
“But for me and my company, we always look at the long term. And in the long term, rates are going to drop and people are going to refinance. In the long term, people will have to keep buying and selling houses. So it won’t affect our business.”
Continuing war ‘is going to slow everything down’
The conflict is currently stirring fears of an inflation uptick and persistent higher oil prices, a crisis that’s likely to worsen if a ceasefire remains out of reach and the Strait of Hormuz – a crucial oil passage that’s been blocked for weeks – stays shut.
Nguyen, though, believes the war will be over by the beginning of the summer and sees that time as a potential turning point for the mortgage market.
“I think the economy is not strong right now with the war, with inflation, with oil prices and a lot of companies laying off their employees,” he said. “So I don’t think in these coming few months things will get better.
“It’s going to slow everything down. It’s a concern. But we always look at long-term business, and we do everything to help our long-term prospects. So it’s a concern, but it’s not a big concern because the market will return. And when the market returns, we want to be ready for it.”
Could the next Fed chair have a big role in boosting the mortgage market?
For now, financial markets – and mortgage market watchers – have little choice but to take a wait-and-see approach amid contradictory signals on a timeline for an end to the war.
Trump has claimed Iranian negotiators want to strike a ceasefire deal, but Iran has refuted those reports and stepped up threats to attack US tech companies in recent days.
But if the war finally grinds to a halt in the coming months, Nguyen sees another factor that could stimulate a housing market recovery this year: the arrival of a new Federal Reserve chair after its current head Jerome Powell steps down in May.
Trump has nominated Kevin Warsh as Powell’s replacement, and it’s thought the incoming chair – whose appointment still needs to be ratified by the Senate – would be more amenable to interest rate cuts than Powell, who’s faced frequent criticism from Trump for his approach to rates.
While Fed rate decisions don’t directly move mortgage rates, they strongly impact Treasury yield movement, and Nguyen sees those yields moving lower by the middle of the year as expectations of Fed cuts grow.
“I would say around the end of June is when the market will improve,” he said. “That’s when we have the new Fed chair. My prediction is that Trump is going to end the war in Iran and with the new Fed chair, they’ll bring down the rate. And that will help the mortgage market.”
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