Iran War Dents Hopes for 2026 Housing Market as Top Economist Sharply Lowers Forecast

Rising mortgage rates are resetting expectations for home sales in 2026, in an early sign that the U.S.-Israeli war with Iran is taking a toll on the housing market.

National Association of Realtors® Chief Economist Lawrence Yun on Monday revised his 2026 forecast to project that existing-home sales volume would rise 4% compared to last year, a sharp pullback from the 14% annual growth he predicted last fall.

“Rather than a double-digit percentage increase, which I thought would occur in 2026, I think it is going to be in the low single-digit percentage gain this year," Yun explained on a call with reporters on Monday morning.

Yun also said he expects new-home sales to remain flat in 2026, revised down from an earlier expectation of 5% growth. However, Yun expects existing-home prices to rise 4% this year, unchanged from his earlier forecast.

Yun said the downward revision to his home sales forecast was due largely to the recent uptick in mortgage rates, which rose sharply as the Middle East conflict sent oil prices soaring and renewed fears of inflation.

Higher mortgage rates are reducing the 2026 outlook

Mortgage rates are currently 6.37% after reaching 5.98% in February, according to Freddie Mac. The Iran war continues to be the dominant force driving financial markets, including the bond market that underlies mortgage rates. 

“Now that the mortgage rate has increased and is likely to stay elevated at least above 6% in the upcoming months, I had to reduce the forecast outlook," Yun said.

Although a tentative two-week ceasefire between the U.S. and Iran went into effect last week, driving down oil prices and offering markets a welcome reprieve, the outlook remains uncertain after Vice President JD Vance said direct talks with Tehran had failed.

Yun had earlier projected mortgage rates to average about 6% across 2026, but has since revised that estimate up to 6.5%.

"That's not going to enlarge the number of potential buyers able to come into the market in large numbers," Yun said. "If we change the mortgage rate, you reduce the number of buyers who can enter the market at 6.5% versus 6%."

Yun also noted that first-quarter home sales had been "a disappointment," with the early months of the year showing lackluster buyer activity.

On Monday, NAR reported a 3.6% decrease in existing-home sales month over month to a seasonally adjusted annual rate of 3.98 million. Sales were also down 1% compared to a year earlier.

"So accounting for the disappointment in the first quarter, along with the higher mortgage rate projection for this year, we have reduced the outlook," said Yun.

Yun acknowledged that a forecast is always subject to error.

"You make some assumptions," he said. "We generate it, but you should always take it with a grain of salt."

Inflation on the rise as oil prices soar

Inflation surged in March, driven by sharply higher energy prices following the U.S.-Iran conflict, which disrupted a key global oil transit route.

Overall prices rose 3.3% over the 12 months through March, matching economists' expectations, up from 2.4% in February, according to Friday’s consumer price index data from the U.S. Labor Department. It marks the largest annual increase in nearly two years.

Core inflation, which excludes food and energy prices, rose to 2.6% from 2.5% in February, in line with expectations and indicating persistent underlying price pressures.

On a monthly basis, headline inflation rose 0.9%, while core inflation increased 0.2% from the prior month.

The energy index rose 10.9% in March from the previous month, accounting for nearly three-quarters of the overall increase in consumer prices.

Gasoline prices rose 21.2% from the previous month, the largest monthly increase since the series began in 1967.

Today, a gallon of regular gasoline costs on average $4.12 a gallon, up from $3.54 last month, according to AAA.