Houses in San Francisco, California, USA, on Monday, March 23, 2026.
David Paul Morris | Bloomberg | Getty Images
The immediate impact of the war with Iran on the US housing market was a sharp increase in mortgage rates. A day before the strikes began, the average interest rate on the 30-year fixed loan was 5.99%, according to Mortgage News Daily. It is now at around 6.5%.
Higher tariffs have limited the expected improvement in affordability. Before the war, not only did mortgage interest rates fall, house price appreciation also fell and the supply of houses for sale increased. All of these favored buyers who were struggling with a tight and expensive market.
According to the Mortgage Bankers Association, mortgage applications to purchase a home increased last week as interest rates fell 5% compared to the previous week. But it’s not just about mortgage rates.
Zillow had forecast a 4.3% increase in existing home sales this year compared to last year.
“This wouldn’t be a strong market, of course, but it would represent a market that has turned the corner and has 2026 acting as a ‘reset’ year,” Mischa Fisher, Zillow’s chief economist, wrote in a report on Tuesday. “However, energy prices and inflation concerns have created new uncertainty, making our outlook even more complex.”
Fisher took advantage of the increase in mortgage rates due to increasing concerns about inflation and the “possibility of a slight increase in the unemployment rate given reduced purchasing power of consumers due to higher prices.”
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Based on these forecasts, he predicted that if the current scenario only lasted until the end of April, home sales would still rise 3.48% this year compared to last year. If it ended July 1, sales growth would drop to 2.33%. If it ended September 1, the gain would be 1.21%. Finally, if mortgage rates remained 50 basis points above their original value and unemployment also increased by 20 basis points for the remainder of 2026, Fisher predicts a decline of 0.73%.
However, the effects are already being felt on the new construction market. After reporting disappointing quarterly results on Tuesday, KB home page lowered its forecast for the full year.
“Consumers have faced a variety of challenges over the past two years, and the conflict in the Middle East that began in late February has added another layer of uncertainty,” KB Home Chairman Jeff Mezger said in 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 meet our previous full-year delivery guidance, we are lowering our margin for the year.”
Builders now have a very large supply of homes for sale, and inventory on the inventory side is also increasing, although more so in the South and West than in the Northeast and Midwest.
According to a count by Redfin, buyers were already canceling contracts before the war began at the highest rate since 2017. About one in seven homes, or 13.7% of homes, that were under contract in February were canceled, up from 12.8% a year earlier. According to Redfin, buyers suddenly have the upper hand as more than 600,000 sellers are in the market as buyers. This is a near-record gap, although it varies greatly from market to market.
“As the housing market approaches the ‘best time to sell,’ it finds itself in a precarious position, caught between long-term improvement and sudden short-term instability,” Jake Krimmel, senior economist at Realtor.com, wrote in a weekly report.
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