Why is the war causing interest rates to climb?

The idea that wars automatically lower interest rates is an oversimplification that doesn't hold up in every situation. Historically, during times of conflict, investors sometimes move money into safer assets like US Treasury bonds, which pushes bond yields down and mortgage rates tend to follow. That's the theory your lender was referencing. But rates are driven by more than just geopolitical events. Inflation, Federal Reserve policy, economic growth, government spending, and global demand for US debt all play a role. If a conflict causes supply chain disruptions, spikes in energy prices, or increased government spending, those factors can push inflation higher, which pushes rates up. That's likely what's happening now. The inflationary effects of the conflict are outweighing the flight-to-safety effect that would normally bring rates down. The Federal Reserve also sets the tone. If inflation stays elevated because of the conflict's economic ripple effects, the Fed is less likely to cut rates, which keeps mortgage rates higher than they'd otherwise be. The takeaway is that no one can reliably predict where rates are going based on a single event. If you find a home you can afford at today's rate, buy it. If rates drop later, refinance. Waiting for rates to move in a specific direction based on geopolitical events is a guessing game that has burned more buyers than it's helped.

Market instability leads to rising costs.

It feels backwards, but it comes down to inflation and risk. Rates don’t move just because there’s a war. They move based on what the market thinks will happen to the economy. Right now, wars can push prices up, not down. Energy, food, and shipping costs often rise. That fuels inflation. When inflation goes up, the Federal Reserve tends to keep rates higher or raise them to slow things down. That pushes mortgage rates up too. There’s also uncertainty. Investors sometimes demand higher returns to lend money during unstable times, which also nudges rates higher. In some past situations, wars slowed the economy and rates dropped. This time, the bigger story has been inflation. Simple way to think about it. If a war cools the economy, rates can drop. If it drives inflation, rates usually go up.

Typically, war causes a "flight to safety," which drives bond prices up and interest rates down. But this conflict has hit global energy markets hard. With oil prices spiking and supply chains tightening, the market is bracing for higher inflation. Since the Federal Reserve's primary job is to keep inflation in check, the expectation of rising prices is actually pushing rates up rather than down. What You Should Consider When the news is moving this fast, the best thing you can do is focus on what you can control. Here is how I’d suggest navigating this: Talk to a Local Expert: Even though I’m not in your specific market, I can tell you that "national" news often feels different than what’s happening in your local neighborhood. Connect with a full-time, local real estate professional who can help you look at the actual inventory and local demand. Sometimes a local shift in supply can be a bigger factor for your move than the global headlines. Interview Your Team: If you’re feeling uneasy, interview a few different agents and even a second lender. Ask them: "How are you helping your clients navigate this volatility right now?" and "What creative financing options (like rate buy-downs) are available to help manage my monthly payment?" Focus on the Long-Term Goal: Markets fluctuate, but your need for a home is personal. If the right house comes along and the math works for your budget today, don't let the "global noise" paralyze you. You can always refinance a rate, but you can't refinance the price you paid for the home. My Advice: Take a deep breath and find an experienced agent who is willing to sit down and walk through the "what-ifs" with you. I have an extensive network and would be happy to recommend a few top-tier agents in your area for you to interview. They can give you a clear, no-pressure look at how these global events are actually impacting your local market. Tricia Jacobs Managing Broker/REALTOR®

That’s a great question, and you’re definitely not the only one wondering the same thing right now. Historically, major global events—like wars or economic uncertainty—can sometimes lead to lower interest rates because investors move their money into safer assets like U.S. Treasury bonds. When that happens, mortgage rates can follow downward. That said, mortgage rates are influenced by a lot of different factors, not just world events. Inflation, Federal Reserve policy, the overall strength of the economy, and the bond market all play a big role. Right now, inflation and economic data are still having a strong impact on rates, which is one of the reasons we’re seeing them move up even with global uncertainty in the background. The reality is that rates tend to move based on a combination of factors, and they can shift pretty quickly depending on new economic reports or market reactions. Your lender will always have the most current information for your specific loan scenario, but I’m always happy to help keep an eye on the bigger picture as you’re house hunting. The most important thing is making sure the payment works comfortably for you and finding a home you love. Rates can change over time, and many buyers choose to refinance later if the opportunity makes sense.

Sometimes they do, but not always. Mortgage rates respond more to inflation and bond markets than to war itself. Right now those forces are pushing rates up, not down. Here are the main reasons: 1. Mortgage rates follow inflation more than global conflict Mortgage rates are closely tied to the 10-year U.S. Treasury yield and expectations about inflation. If investors think inflation will stay high, they demand higher returns on bonds — which pushes mortgage rates higher. Right now markets are concerned about: Persistent inflation Government spending and deficits Strong consumer demand Those pressures keep bond yields elevated. 2. Wars can sometimes increase inflation In some conflicts, wars disrupt: energy markets shipping routes global supply chains If oil, food, or transportation costs rise, inflation increases, which leads to higher interest rates rather than lower ones. 3. The Federal Reserve’s policy matters more Mortgage rates are heavily influenced by expectations of what the Federal Reserve will do with monetary policy. If the Fed is: fighting inflation keeping rates higher for longer then mortgage rates tend to stay elevated regardless of geopolitical events. 4. The “flight to safety” effect isn’t dominating Sometimes wars cause investors worldwide to move money into U.S. Treasury bonds because they are seen as safe. That can push rates down. But currently: investors are worried about inflation the U.S. is issuing large amounts of debt the economy remains relatively strong So bond yields have not fallen enough to lower mortgage rates. 5. Mortgage spreads are wider than normal Mortgage rates are not just Treasury yields. There is also a risk premium added by lenders and investors in mortgage-backed securities. Uncertainty in housing and financial markets can cause that spread to widen, keeping mortgage rates elevated. Wars can lower interest rates if they trigger a major economic slowdown or massive demand for safe assets. But in the current environment, inflation concerns and Fed policy are outweighing the war effect, so mortgage rates have risen instead.

Wars often push interest rates higher because governments spend and borrow more money to fund military and defense, which increases demand for capital. At the same time, wars disrupt supply chains, energy, and food markets, causing inflation. To control rising prices and stabilize the economy, central banks like the Federal Reserve often raise interest rates.

The conflict with Iran is pushing interest rates higher mainly because of fluctuations in oil prices, uncertainty in the overall market, government borrowing because wars are expensive , and inflation expectations as a result of all the borrowing.

Mortgage rates had actually been improving and briefly dipped below 6% average for the first time since 2022, but the conflict in Iran has pushed oil prices higher, which raises inflation concerns and caused bond yields, and mortgage rates, to rise slightly again, now just above 6%. The increase is small at this point in time and won’t dramatically change affordability for most buyers, but crossing the 6% mark can feel psychologically significant. If the conflict is short, the impact on housing will likely be temporary and simply delay some spring buyers. But if the war drags on and keeps energy prices elevated, mortgage rates could stay higher longer and slow the market a bit. It would be a positive for the market if the war goes on longer, that tankers with oil can move freely through the Strait of Hormuz. In my marketplace, clients are buying. If rates come down in the future, you can refinance your loan. Stay tuned.