The Oil Shock That Hit Your Mortgage

The Rithm Take

The Iran conflict reversed the most meaningful progress on mortgage affordability in four years. On February 26, the 30-year mortgage rate dipped below 6% for the first time since 2022, driven in part by MBS spread tightening following the administration's directive for the GSEs to add $200 billion to their retained portfolios. Two days later, the US and Israel struck Iran.

Forty days in, the damage across asset classes is significant. Equities are down roughly 7%, oil is up nearly 49%, the 10-year has sold off 49 basis points, and the the 30-year fixed mortgage rate has widened 38 basis points from its pre-conflict level. Compared to ten historical geopolitical episodes, the current readings on oil, Treasuries, and mortgage rates are all well above historical averages at this stage.

Iran Conflict: Cross-Asset Impact vs. Historical Precedents

Peak Stress = worst adverse reading within 90 days of event start. Day 40 ≈ T+30, the closest data point to where the current conflict stands.
S&P 500 & Oil = total return (%). 10Y UST, CC Basis, 30Y Mortgage Rate, MBS OAS = change in basis points. Red = adverse. Green text = Iran-specific event.
Note: Soleimani peak drawdown (-32%) includes COVID overlap. Liberation Day tariffs not geopolitical but included for recency. Source: Bloomberg.

What makes this episode different from prior geopolitical shocks is the direction of the Treasury move. In most events, Treasuries rally on a flight to safety, cushioning mortgage rates. Here, because the shock was inflationary rather than deflationary, Treasuries sold off. The 10-year at +49bp at Day 40 is nearly ten times the all-event average of +5bp and six times the Iran-event average of +8bp. The typical hedge did not work. Mortgage rates took the full weight of the repricing rather than being insulated by it.

As we wrote in January, the administration had been exercising all available levers to ease affordability, with GSE purchases offsetting the Fed's ongoing MBS runoff and resetting tighter the spread on benchmark Agency MBS. The conflict undid much of that progress. The question now is whether, as the conflict potentially stabilizes (a seemingly fragile truce was announced April 7), the path back to sub-6% mortgage rates is achievable, or whether the inflation repricing has durably shifted the rate complex higher. Historical analogs suggest partial normalization, not full reversion. The base case projects roughly a 12 basis point decline in the 30-year rate over the next 30 days, still leaving mortgage rates approximately 26 basis points above pre-conflict levels. The bull case, notably, projects rates falling slightly below pre-conflict levels. Getting back to sub-6% requires both a meaningful Treasury rally and basis compression, and the GSEs are the swing factor on the latter.

30-Day Post-Resolution Scenarios:

Based on historical precedent: how each asset moved in the 30 days after its acute phase ended, across 10 prior geopolitical events.
Projected Incremental Move (Resolution → Resolution + 30 days)

Methodology: For each of 10 historical geopolitical events, we computed the incremental asset move in the 30 days immediately following the end of the acute phase (resolution date = start date + acute phase days from Historical Comps).
Scenarios are derived from the percentile distribution of those 10 historical post-resolution moves. Bull = 75th pctile favorable, Base = median, Tail = worst historical analog.
Note: Gulf War 30Y Mtg (ILM3NAVG) excluded — no data pre-1992. COVID resolution = Mar 13 2020 (emergency declaration). Russia-Ukraine resolution = Aug 23 2022 (180-day market impact phase). Source: Bloomberg.

Market Signals

1. Oil is the transmission mechanism.
Crude is up nearly 49% at Day 40, with a peak stress reading of +78%. The Strait of Hormuz closure has disrupted roughly 20% of global oil supply, and the IEA has characterized it as the largest supply disruption in the history of the global oil market. The inflation pass-through from energy into Treasury yields is what separates this episode from prior Iran-related events, where oil moved modestly and mortgage rates barely registered the shock.

2. The Treasury move is the outlier, not the mortgage move.
The 10-year at +49bp at Day 40 is nearly ten times the all-event average of +5bp. The market is pricing an inflation impulse, not a flight to safety, and that distinction is what denied mortgage rates the cushion they typically receive during geopolitical stress.

3. The current coupon basis widened, but MBS OAS held.
The CC basis at +20bp is above the all-event Day 40 average of +9bp, though well below the peak stress readings seen during episodes with COVID overlap. When the March data is released we will be able to determine whether it was the GSE bid which had partially absorbed rate volatility without forcing spread widening in the Agency market. 

4. The secondary market has peaked, but primary rates are starting to respond.
The 30-year fixed mortgage rate peaked at +41bp and has retraced to +38bp, suggesting the worst of the repricing is behind us. More real-time primary market data confirms the turn. Optimal Blue data shows the 30-year mortgage rate has declined roughly 20 basis points from its peak of 6.49% on March 27 to 6.29% as of April 8. Both measures are now moving in the right direction, though neither has retraced meaningfully relative to the initial shock.

5. The affordability math.
On a $400,000 loan, the move from 5.98% to 6.49% adds roughly $134 per month to a mortgage payment, or approximately $48,000 over the life of a 30-year loan. Purchase applications have fallen 3% and refinance applications dropped 17% since the conflict began. The conflict hit right at the start of the spring buying season, just as affordability was beginning to improve for the first time in years. Even with Optimal Blue data showing rates have pulled back to 6.29%, borrowers remain meaningfully worse off than they were in late February.

Bottom Line: The Iran conflict turned an inflationary oil shock into a mortgage affordability shock, reversing the first sub-6% print in four years. The base case leaves rates roughly 26 basis points above pre-conflict levels a month from now. Getting back to sub-6% requires both a Treasury rally and basis compression and the GSEs may play a key role in the latter.