The ongoing Iran conflict led the IMF to cut its US growth outlook Tuesday. Will more homebuyers now step to the sidelines?
Speculation around a global economic downturn gathered pace on Tuesday after the International Monetary Fund (IMF) slashed its worldwide growth outlook and warned of a recession if the US-Iran war rumbles on.
Citadel chief executive officer Ken Griffin echoed that call, saying there was “no way to avoid” a global recession if the Strait of Hormuz – a key oil shipping route closed by Iran and recently blockaded by the US – remains shuttered.
The Iran war, which erupted at the end of February, has already complicated the US housing market outlook by sending bond yields and mortgage rates sharply upwards at a time when plenty of hopeful buyers were already facing acute affordability challenges.
For now, a brittle ceasefire between the US and Iran, brokered by Pakistan and announced on April 8, technically remains in place despite inflamed tensions this week.
But a recommencement of hostilities after that two-week agreement ends could prove hugely damaging for the global outlook – and the US economy and housing market.
The IMF trimmed its forecast for US growth this year to 2.3%, down by 0.1 percentage points, and highlighted the risk of higher inflation if the ongoing energy crisis continues.
Yury Shraybman (pictured top), a Philadelphia-based mortgage broker with Innovative MTG Brokers, told Mortgage Professional America he viewed a lasting ceasefire as essential to the prospect of some rate relief in the weeks ahead.
“The conflict created more uncertainty in the markets, pushed oil prices higher, and added inflation concerns – all of which put upward pressure on Treasury yields and mortgage rates,” he said. “If things stay calm, that should definitely help.”
Mortgage rates expected to stay steady for now
The 10-year US Treasury yield, which strongly influences the average 30-year fixed mortgage rate, has hovered around its current level since the ceasefire was announced.
And while Freddie Mac said mortgage rates posted a mild decline last week – one of their first since the beginning of the conflict – few in the industry are expecting to see a sudden and dramatic drop in borrowing costs in the weeks ahead even if the ceasefire holds.
That’s because oil prices still look likely to remain elevated for the foreseeable future while there’s little clarity on whether the Federal Reserve will hike, hold or cut rates in the coming months.
“I would not expect mortgage rates to suddenly drop in a major way just from the ceasefire alone,” Shraybman cautioned. “Rates are still being driven by inflation, economic data, and the bond market, along with Fed expectations. I expect any improvement will likely be gradual in the near future.
“If the conflict is actually resolved on the other hand and not just paused, then I do believe that would be much more meaningful. A real resolution will reduce uncertainty further, help keep oil prices under control, and create a better environment for rates to come down more – assuming the rest of the economic data cooperates.”
Buyers might be concerned – but economist says war impact will be ‘short-lived’
For now, many US homebuyers will likely stay on pause as they wait for more certainty on the economic outlook – particularly with a potential recession likely to put a large number of jobs at risk.
Despite the growing doom and gloom, though, Oxford Economics sounded a positive note on the long-term outlook by suggesting the Iran conflict would wrap up this year with US economic growth improving after 2026.
“We expect growth to pick up in 2027 as we think the disruption related to the US/Israel war with Iran will prove short-lived,” Michael Pearce, the company’s chief US economist, said in a note.
Over the next decade, Oxford expects the economy to expand at an annual average rate of 2.4%, mainly due to anticipated strong productivity growth “with job growth likely to be weak.”
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