Mortgage rates hit yearly high as Iran conflict escalates

As the Iran conflict 2.0 escalates, mortgage rates hit yearly highs today at 6.85%, compared to the same day last year when they were 6.78%. This marks the first time in 2026 that rates are higher this year than last.

With WTI oil over $90, Brent Crude over $100, and jobless claims hitting a low last seen in 1969, the 10-year yield hit 4.71% this morning. The 2-year yield hit 4.37% and the 3-month yield 3.88% — all yearly highs. In addition, the Fed meets next week and with the hawks in control, there is a 36% chance of a rate hike.

What should we expect next?

30-year mortgage rates and oil prices

I have talked about the risk of this Iran conflict escalating and how my forecast of the 10-year yield at 4.60% and mortgage rates peaking at 6.75% would be in danger if the conflict continued. Well, it’s escalating in a bigger fashion than even I thought would happen, as we are attacking Iran during market hours, which means a market impact, as you can see with the price of oil. 

Since the conflict reignited, I’ve warned that rates could rise higher than my peak forecast if the Iran conflict gets even worse. Today, President Trump said he is weighing a “massive attack,” which is driving rates up.

However, even with a large escalation in Iran, I am talking about rates that are 0.375%-0.43% above 6.75%. This means rates should stay below 7.25%. Today, HousingWire’s mortgage rates center — powered by Polly locked rate data — has rates at 6.90% and Mortgage News Daily is at 6.85%. So the escalation is kicking rates into that higher gear.

More bad news on the conflict can drive rates even higher, but the opposite is also true: good news will help rates fall.

10-year yield

Below is the 10-year yield over the last five years — we are trading near the upper range of this level. As the conflict has escalated over the last 13 days (what I call Iran 2.0), bond yields have slowly moved higher and higher. The conflict is key here for the 10-year yield because now, anything negative about the Iranian conflict with rising oil prices, sends yields higher. The last two weeks of bond trading confirm that the conflict is leading the way pushing yields higher. 

Mortgage spreads have kept rates under 7%, but for how long?

Mortgage spreads, more than ever, have been the hero for housing this year, but they have limits because the 10-year yield has been tied to the 30- year mortgage rates for decades, as the chart below shows.

As you can see in the chart below, if mortgage spreads were at 2024 or 2025 levels, mortgage rates would have been over 7% months ago.

I write about mortgage spreads every week in the Housing Market Tracker. Comparing last week’s mortgage rates to where they would have been over the last three years, given the 10-year yield’s current level:

• If we had the worst mortgage spread levels of 2023, mortgage rates would be 7.80% today, not 6.64%.
• If we had the worst levels of 2024, mortgage rates would be 7.42% today 
• If we had the worst levels of 2025, mortgage rates would be 7.23% today.

Conclusion

To keep things simple, even with the hawkish Fed and better labor data, the last few days are all about the conflict and oil prices.

The bond market is trading off the Iranian conflict 2.0 headlines as we have had 13 straight days of bombing — and now the pirates of the Red Sea, the Houthis, have attacked a tanker crossing the Bab el-Mandeb. President Trump might now need to fight on two fronts: the Iranians in the north and the Houthis in the south. We will be keeping a close eye on the developments.