Thursday, March 5, 2026

Economic Uncertainty Deepens as Iran Conflict and Tariffs Pressure Housing

By EDDIE RIVERA

Rising mortgage rates and geopolitical tensions cloud outlook for California real estate

Renewed geopolitical tensions involving Iran, along with persistent and confusing tariff-related issues, all from the current administration, are injecting fresh volatility into financial markets and threatening to slow the U.S. economy, economists say—developments already rippling through the housing sector as mortgage rates climb again.

Mortgage rates have moved back above 6% in early March after briefly dipping below that level in late February, a shift tied to rising Treasury yields, as investors look at inflation risks linked to both global energy markets and trade policy. That movement has now interrupted a modest improvement in housing affordability earlier this year.

“The housing market remains extremely sensitive to mortgage-rate swings,” said Lawrence Yun, chief economist for the National Association of Realtors. “Even a small increase in rates can sideline potential buyers, particularly in high-cost states like California.”

The rate volatility arrives as financial markets digest the potential economic consequences of a widening Middle East conflict. Analysts warn that any sustained disruption to energy markets could raise fuel prices and prolong inflationary pressures already present in the U.S. economy.

“The biggest channel through which a conflict involving Iran affects the U.S. economy is oil,” said Mark Zandi, chief economist at Moody’s Analytics. “Higher oil prices would add to inflation at a time when inflation is already proving stubborn.”

Persistent inflation could complicate the Federal Reserve’s path toward interest-rate cuts this year. Federal Reserve Bank of Cleveland President Beth Hammack said recently it is too early to determine the full economic consequences of the Iran conflict but indicated policymakers remain cautious about easing policy prematurely.

If inflation remains elevated, borrowing costs—including mortgage rates—could stay higher for longer.

That poses a challenge for housing markets that had only recently begun to stabilize.

Real estate analysts say higher mortgage rates reduce affordability and purchasing power, slowing home sales and discouraging some buyers from entering the market.

“Housing demand is extremely rate sensitive,” said Danielle Hale, chief economist at Realtor.com. “When mortgage rates rise suddenly, buyers often step back to reassess their budgets.”

The slowdown is already visible in real estate investment trends. Businesses and households facing policy uncertainty—including tariffs and geopolitical risk—have grown more cautious about spending and long-term investment decisions.

A recent Federal Reserve analysis cited tariff-driven cost increases as a significant pressure on small businesses in 2025, with many firms reporting they had passed at least some of those costs on to consumers.

For California’s housing market, where home prices remain among the highest in the nation, the consequences are particularly pronounced.

The California Association of Realtors reported that only 18% of California households could afford the state’s median-priced home—about $869,000—in the fourth quarter of 2025.

Even so, economists say the housing market is unlikely to experience a sharp nationwide price collapse.

A key reason is supply. The US continues to face a structural housing shortage estimated at several million homes, a gap that has kept prices relatively resilient despite weaker demand.

“Housing inventory remains historically low,” Yun said. “That supply constraint prevents the kind of dramatic price correction seen during the financial crisis.”

Still, prolonged economic uncertainty could further dampen activity.

A sustained conflict that lifts oil prices could weaken consumer sentiment, reduce business investment and slow hiring—factors that influence homebuying decisions.

“The longer uncertainty persists, the more cautious households and businesses become,” Hale said.

For now, economists say the housing market is likely to remain stuck in a fragile balance—supported by limited supply but constrained by high borrowing costs and economic uncertainty.

In California and other high-cost regions, that tension may keep both buyers and sellers waiting on the sidelines as markets watch closely for signals from inflation data, energy prices and the Federal Reserve’s next move.