Here’s how the Iran war is already hitting the U.S. housing market
Houses in San Francisco, California, USA on Monday, March 23, 2026.
David Paul Morris | Bloomberg | Getty Images
The direct impact of the war with Iran on the US housing market was a sharp increase in mortgage interest rates. The day before the strikes began, the average rate on a 30-year fixed loan was 5.99%, according to Mortgage News Daily. It is currently hovering around 6.5 percent.
Higher rates have dampened what was expected to be an improvement in affordability. Before the war, not only were mortgage rates falling, but house price increases were also decreasing and the supply of homes for sale was increasing. All of these favored buyers facing a tight and expensive market.
While interest rates rose last week, mortgage applications to buy a home fell 5% from the previous week, according to the Mortgage Bankers Association. But it’s not just about mortgage rates.
Zillow predicted a 4.3% increase in existing home sales this year compared to last year.
“While it is certainly not a strong market, it will represent a market turning the corner, with 2026 acting as the ‘reset’ year,” Zillow chief economist Mischa Fisher wrote in a report on Tuesday. “But new uncertainties have emerged through energy prices and inflation concerns, adding new complexity to our outlook.”
Fisher cited the increase in mortgage rates due to growing concerns about inflation and “the potential for a slight increase in the unemployment rate due to reduced consumer spending power resulting from higher prices.”
Modeling these, he estimates that if the current scenario only lasts until the end of April, home sales will still increase by 3.48% this year compared to last year. If it ends on July 1, the gain on the sales will drop to 2.33%. If it had ended on September 1, the gain would have been 1.21%. Finally, if mortgage rates remain 50 basis points higher than their original course and unemployment rises 20 basis points through the remainder of 2026, Fisher predicts a decline of 0.73%.
But its effects are already hitting the new construction market. Following a disappointing quarterly earnings report on Tuesday, Home Page It lowered its full-year forecast.
“Consumers have faced a variety of challenges over the past two years, and the conflict in the Middle East that began in late February added another layer of uncertainty,” KB Home President Jeff Mezger said on a call with analysts. “Against this backdrop, and taking into account that our net orders in the first quarter were below the level we needed to maintain our previous full-year delivery target, we are lowering our range for the year.”
Builders now have a very high supply of homes for sale, and while there is more in the South and West than in the Northeast and Midwest, inventory on the existing side is also increasing.
Even before the war began, buyers were canceling contracts at the highest rate since 2017, according to Redfin’s count. Roughly 1 in 7 homes, or 13.7% of homes under contract in February, were canceled; This rate was 12.8% compared to the previous year. Buyers suddenly have the upper hand, as there are more than 600,000 more sellers than buyers in the market, according to Redfin. This is a near-record difference, although it varies greatly from market to market.
“The housing market is in a precarious position, caught between long-term improvements and sudden short-term instability as we approach the ‘best time to sell’ season,” Jake Krimmel, senior economist at Realtor.com, wrote in his weekly report.
