For the first time in five weeks, mortgage rates moved in a direction that favored homebuyers. The average 30-year fixed-rate mortgage dropped to 6.38% this week, down from 6.46% the week prior, according to Freddie Mac data. The catalyst was the ceasefire agreement between the United States and Iran, which cooled inflation fears long enough to push the 10-year Treasury yield below 4.3%.
The reprieve was real, but economists are already cautioning against reading too much into it. By midday Thursday, Treasury yields and oil prices were climbing again as concerns mounted over how durable the ceasefire agreement would prove to be.
What the Iran war did to mortgage rates
Before the conflict escalated in early March, the trajectory for fixed mortgage rates had been pointing downward. Lenders and buyers alike had been anticipating a gradual decline through the spring and into the summer. The war reversed that expectation quickly.
As oil prices surged following the closure of the Strait of Hormuz, which accounts for roughly 20% of the world’s oil trade, inflation concerns pushed lenders to reprice their products upward. The average two-year fixed rate in the United Kingdom jumped from 4.83% to 5.90% over that period, its highest level since July 2024. Five-year fixed rates rose from 4.95% to 5.78%, reaching their highest point since November 2023. The pattern was similar across major economies, with lenders pulling products from the market entirely as geopolitical uncertainty made long-term pricing difficult to calculate.
In the United States, the 30-year fixed rate had been climbing steadily, reaching a six-month high before this week’s dip. Homebuilding stocks responded positively to the drop, with shares in D.R. Horton, Lennar, and PulteGroup all trading higher on the news.
Where the housing market stands right now with mortgage rates
Even with this week’s decline, mortgage rates remain well above the 6% threshold that most economists identify as a meaningful affordability barrier for buyers. The spring selling season is underway, but access remains restricted for a significant share of would-be purchasers.
One sign of how strained conditions have become is the pace of seller price reductions. According to Redfin data, a record 34.2% of home sellers cut their asking prices in February, up from 31.5% the prior year. The average reduction was 7.3%, or roughly $40,915 per listing. That level of price cutting during what is traditionally the strongest buying season of the year reflects a market where sellers are adjusting to the reality that fewer buyers can qualify at current rate levels.
How the ceasefire rippled into other household costs
The mortgage market is one piece of a broader financial picture that the Iran war has been reshaping since early March. In the United Kingdom, fuel prices rose sharply in the weeks following the start of the conflict. Average petrol prices climbed roughly 25 pence per litre, with diesel up nearly 48 pence per litre. Filling a standard family car with petrol cost about £13 more than it did before the conflict began, with diesel adding £26 to a typical fill.
Energy bills are also moving. Wholesale gas prices rose through the conflict period, and forecasts from Cornwall Insight suggest a dual-fuel household in England could see its annual energy bill rise from £1,641 to £1,871 under the next Ofgem price cap cycle, set to take effect in July. That forecast was built before a ceasefire was announced and remains subject to change depending on how quickly supply lines recover.
What comes next for rates
The Federal Reserve’s interest rate path has grown more complicated as a result of the conflict. Several Fed officials have signaled a preference for holding rates steady to account for inflation risk, a stance that was not in play before the war began. The Bank of England took a similar wait-and-see position at its most recent meeting, pausing a rate-cutting cycle that had appeared set to continue.
A ceasefire that holds could begin bringing those pressures down. But the fragility of the current agreement, combined with ongoing military action in Lebanon that falls outside the ceasefire’s stated scope, means the financial relief triggered this week remains conditional. Whether mortgage rates continue their descent or resume climbing depends largely on what happens in the coming days.
