Oil Prices Plunge After Iran Ceasefire in Positive Sign for Mortgage Rates

The two-week ceasefire agreement between the U.S. and Iran is sending oil prices plunging, driving a rally in the stock market and relieving recent upward pressure on mortgage rates.

The tentative agreement announced by President Donald Trump Tuesday night sent the major stock indexes soaring at Wednesday's opening bell, with the Dow Jones Industrial Average jumping more than 1,300 points, or 2.9%.

Oil prices, which had surged since the war began Feb. 28, fell back sharply. Brent crude, the international standard, dropped more than 15%, signaling potential relief at the gas pump and easing fears of new runaway inflation.

The 10-year Treasury yield, a key indicator for mortgage rates, also dropped, signaling lower borrowing costs for homebuyers in the coming days. Mortgage rates had hit 6.46% last week, up from a three-year low of 5.98% before the war began, according to Freddie Mac.

"Last night's ceasefire quickly reversed the wartime market trends of the past month," says Realtor.com® senior economist Joel Berner. "All of the things that real estate economists have been decrying since the conflict broke out have started to move back in a more favorable direction."

Still, the temporary truce remains fragile, with many unanswered questions about whether it will result in lasting peace, and if Iran will retain effective control over the crucial Straight of Hormuz, a shipping passage for 20% of the world's crude oil.

If peace does endure, falling oil prices will help improve the inflation outlook, reducing the possibility of a Federal Reserve rate hike later this year, which policymakers had begun to warn about.

From homebuyers, it likely means lower mortgage rates, although the effect probably will not show up in the weekly average that Freddie Mac will release on Thursday.

"Mortgage rates should now have some room to fall, though we may not see it right away," says Berner. "Whether this is enough to spur on homebuying activity remains to be seen, especially if buyers anticipate rates continuing to fall amid the market volatility and choose to wait for lower rates."

Hopes for this year's spring housing season had been high at the outset. Following three years of historically low sales, conditions were finally beginning to improve for buyers, with rising inventory, softening prices, and easing mortgage rates.

The war upended that outlook, as gas prices soared, adding pressure to household budgets. Because mortgage rates are sensitive to changes in inflation expectations, rates also surged, undermining tentative affordability gains for homebuyers.

Now those trends are in reversal, but it remains to be seen whether that will translate into increased consumer confidence and an uptick in home sales.

"It's hard to declare the spring housing market 'saved,' but at least it's not being further endangered," says Berner. "The risk here is some weariness at the volatility in the markets."

Homebuyers may be exhausted or confused by the recent whipsaw in mortgage rates, the economist says.

"Buyers may choose to stay put until there is more certainty and steadiness in mortgage rates," says Berner.