Mortgage rates are headed higher as the bond market is taking the Iran conflict more seriously today and Fed rate hikes are now being priced in for the first time in a serious manner. If this continues, forget about any rate cuts or mortgage rates heading toward 6% anytime soon. <\/p>\n
The 10-year yield is surging today. This move started from the lows yesterday, but the 10-year yield, which has put up a big fight not to go above 4.50% during this conflict, finally gave in today, as no progress has been made following President Trump\u2019s meeting with China\u2019s Xi Jinping. <\/p>\n
In addition, the closer we get to June, the more problematic the oil reserve situation becomes, making inflation more entrenched and prolonging the reopening of the Strait of Hormuz and the return to normal. The 4.50%-4.60% level on the 10-year yield was my target on the escalation level, and we are here. What happens next?<\/p>\n
One of the biggest concerns I\u2019ve had with this conflict is that if it\u2019s still going on into June, this can be very problematic for the Federal Reserve<\/strong> and inflation because every week that goes by, certain countries are producing less oil as storage capacity fills up. It\u2019s now May 15 and we still don\u2019t have a deal. A lot of Fed governors are talking more and more about their concern over when the Strait of Hormuz can be opened so hopefully we can get some closure on this. <\/p>\n However, the longer this conflict goes, the more problematic it is. Even Fed governors have said that if the Strait were open today, it would take months before oil supply gets back to normal. If this conflicts is still here from June to September, a lot of variables for 2027 will change and even new Fed Chair Kevin Warsh<\/a> might need to join the hawkish Fed gang.<\/p>\n My rule of thumb has always been that the housing market improves when mortgage rates<\/a> go below 6.64% and head toward 6%. Now that level is in jeopardy. While mortgage spreads<\/a> have kept a lid on rates getting above 6.64%, at some point spreads can\u2019t hold the line against rising yields. In my HousingWire 2026 forecast<\/a>, the peak for the 10-year yield was 4.60%. Of course, the conflict in Iran wasn\u2019t part of the 2026 forecast, but getting above 4.60% regardless of any event means something went wrong in 2026, and what is happening is that rate hikes are now being priced in for 2027.<\/p>\n2. Housing has held up fine so far, but there are limits<\/h2>\n
3. Does Trump fold?<\/strong><\/h2>\n