Iran war threatens to derail recovery of housing markets

Housing markets around the world have endured a difficult few years as high inflation and economic uncertainty, combined with the cost-of-living crisis and energy shocks triggered by the war in Ukraine, have weighed on buyers and sellers.

US housing analysts had identified signs of renewed momentum earlier this year, but are now warning that the market may have already peaked in 2026 as the war with Iran pushes up energy prices, raises inflation concerns and increases borrowing costs, according to coverage by the Newsweek outlet.

According to housing market analysis by Zillow, a US real-estate marketplace, strong home sales recorded in July largely reflected purchasing activity from June, before the end of the US ceasefire with Iran.

Since then, rising mortgage rates, renewed inflation concerns and growing economic uncertainty have clouded the outlook for the remainder of the year.

"The war in Iran is absolutely putting a damper on the housing market, as the complications in the Strait of Hormuz keep oil prices elevated," Joel Berner, a senior economist, told the publication.

"Oil prices tend to bleed into the costs of every physical good in the economy, so expectations about inflation are high. When that happens, a dollar tomorrow is worth less than a dollar today and more future dollars are required to finance the purchase of things like homes right now via higher mortgage rates."

In the US, housing affordability remains one of the biggest financial challenges facing households. Even relatively small increases in mortgage rates can add hundreds of dollars to monthly payments, potentially putting homeownership out of reach for many buyers.

The conflict with Iran has generated fresh concerns about energy prices and inflation, both of which can influence borrowing costs across the economy. Those pressures come at a time when many prospective buyers are already struggling with elevated home prices and financing costs.

Zillow reported that year-on-year home sales increased 7% in July, the strongest annual increase recorded so far in 2026. However, the company cautioned that many of those transactions reflected offers made weeks earlier, before tensions with Iran escalated.

More recent indicators paint a less optimistic picture. Zillow said newly pending home sales rose just 0.3% year-on-year in July and fell 7.7% from June.

Because pending sales typically become completed transactions one or two months later, the figures could point to weaker sales activity ahead.

"The disruption to oil is being felt in mortgage markets and is slowing home purchases. It's not a guarantee that the home sales gains 2026 has seen will go by the wayside for the rest of the year, but higher-for-longer mortgage rates certainly press in that direction," Berner said.

How conflict affects housing markets

The connection between a conflict in the Middle East and housing markets may not be immediately obvious. Energy markets, however, provide a crucial link between geopolitical tensions and mortgage costs.

Disruptions to global oil supplies can push energy prices higher, contributing to inflation. Rising inflation expectations can then drive up Treasury yields, prompting mortgage lenders to raise borrowing rates.

"The Iran conflict pushed oil prices up; oil feeds inflation. And the bond market reaction is what's kept the 30-year fixed near 6.7 percent for months instead of drifting back toward 6 percent," Michael Ryan, a finance expert, explained.

"Zillow's own numbers show what that costs a buyer. Earlier this year, when rates briefly touched 6 percent, the typical household had about $30,000 more buying power than the year before. That's the number sellers should be watching, not the headline mortgage rate."

Mortgage rates moved sharply higher following the end of the ceasefire. US media outlet CNBC reported that average 30-year mortgage rates rose from 5.99% shortly before military strikes began to around 6.5% afterwards.

Pressures on supply side

The uncertainty is also affecting the supply side of the housing market.

Homebuilders told Newsweek that challenges linked to the Iran war had affected their businesses, with at least one company lowering its full-year forecast earlier this year. The company also reported weaker consumer demand as economic uncertainty increased following the outbreak of the conflict.

A slowdown in construction could further complicate the housing market by limiting the supply of new homes at a time when demand is already weakening.

"For sellers, price for the buyer pool you have right now, not the one from June," Ryan said. "The long-term risk isn't the war itself. It's that mortgage rates and geopolitics are now tied together in a way most housing forecasts don't model well."

According to Newsweek, housing data released over the coming months will provide a clearer indication of whether the recent slowdown in pending sales develops into a broader market downturn. August and September sales figures will be particularly important because they are expected to more fully reflect buyer behaviour after mortgage rates increased and economic uncertainty intensified.

By Nazrin Sadigova