Rising oil prices tied to the ongoing U.S.-Israeli conflict with Iran are introducing new economic uncertainty just as the U.S. housing market enters its most active period of the year. Analysts note that the situation could influence mortgage rates, consumer confidence, and broader economic conditions.
As the conflict entered its 10th day on Monday, West Texas Intermediate crude oil reached $100 per barrel. That level has not been seen since the summer of 2022, when inflation reached a 40-year high. At the same time, fuel prices have already increased. According to AAA, the national average price for regular gasoline reached $3.48 per gallon on Monday, representing a 16% increase from the previous week.
Higher oil prices often affect a wide range of costs across the economy. Businesses that face increased fuel and transportation expenses may adjust prices for goods and services, which can influence areas such as airline travel and groceries.
President Donald Trump addressed the situation on his Truth Social platform, stating that oil prices “will drop rapidly when the destruction of the Iran nuclear threat is over.” He also wrote that the current oil price increase “is a very small price to pay” for peace and security.
Housing Market Faces Key Timing Challenge
The increase in oil prices coincides with the beginning of the spring housing season, which typically brings the highest level of homebuying and selling activity. Economists note that economic uncertainty during this period can affect housing market momentum.
Realtor.com senior economist Jake Krimmel said the current situation echoes financial market disruptions that occurred last year following tariff announcements.
“This is the second time in as many years we have seen panic and uncertainty injected into global financial and commodities markets,” Krimmel said. “Although a tariff-driven recession never came to bear last year, economic uncertainty combined with upward pressure on interest rates was enough to short-circuit 2025’s spring housing market.”
In 2025, a combination of tariff-related headlines, reduced consumer confidence, paused Federal Reserve rate cuts, and higher mortgage rates contributed to a slowdown in housing activity. As a result, the year became one of the slowest housing markets in decades and marked the third consecutive year of declining home sales.
Krimmel noted that the early months of 2026 had shown signs of improvement before the conflict began.
Mortgage rates reached a three-year low of 5.98% in late February. At the same time, February housing data from Realtor.com showed an increase in new listings and a rise in pending home sales. These indicators suggested a potentially stronger spring housing market.
However, mortgage rates have already begun to respond to inflation concerns in financial markets. The average mortgage rate moved back above 6% last week. Analysts note that bond markets, which influence mortgage rates, often react quickly to inflation risk.
Economic Indicators Reflect Growing Concern
Some economic indicators have also shifted in response to the situation. On the prediction marketplace Polymarket, the probability of a U.S. recession in 2026 rose above 40% on Sunday. That level has not been seen since the fall of last year.
Krimmel said uncertainty alone can affect consumer behavior in the housing market.
“Like 2025, the economic panic and uncertainty alone could be enough to torpedo momentum in the housing market,” he said. “The American economy and consumer are extremely resilient overall. But when it comes to making a big decision like selling or buying a home, consumers need confidence and clarity in the near term. The events of the past 10 days are really testing that right now.”
Stagflation Concerns and Mortgage Rate Pressure
The current oil price increase has also raised discussion of stagflation, an economic condition characterized by high inflation combined with rising unemployment.
Stagflation presents challenges for central banks because the policy tools used to address inflation and unemployment typically move in opposite directions. The Federal Reserve raises interest rates to reduce inflation and lowers them to stimulate employment.
A well-known example occurred during the 1970s oil crisis. At that time, an oil embargo by Middle Eastern producers drove crude oil prices sharply higher. The result was a recession combined with rising prices. During that period, the Federal Reserve raised interest rates while unemployment increased. Mortgage rates eventually exceeded 10%, while the unemployment rate reached 9%.
A similar outcome is not certain in 2026. Analysts note that a rapid resolution to the conflict and the restoration of normal oil shipments through the Strait of Hormuz could stabilize energy markets and reduce inflation pressure.
However, if the conflict continues or regional shipping routes remain threatened, higher oil prices could continue to affect economic conditions.
The Federal Reserve is currently maintaining a holding pattern on interest rates. In response to potential inflation pressure, policymakers could delay anticipated rate cuts. Cleveland Federal Reserve President Beth Hammack said both economic scenarios remain possible.
“There are two-sided risks to rates,” Hammack told the New York Times. “If we see more weakness emerging in the labor market, it could mean that we need to provide more accommodation. If we don’t see inflation moving toward the target as I expect, it could mean that we need to put more restrictions on the economy.”
Although the Federal Reserve does not directly set mortgage rates, inflation expectations influence bond markets that help determine mortgage pricing. As a result, renewed inflation pressure could place upward pressure on mortgage rates and reduce affordability gains that appeared earlier in 2026.
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