Welcome to this week’s Market Monday. We’re stepping into a complex economic environment this morning as global events once again dictate the pace of domestic finance. While the year began with a hopeful "soft landing" narrative, the recent escalation of conflict in Iran has introduced a fresh wave of volatility, specifically pushing interest rates back into an upward climb.

Today, we look at why this is happening and what the "new normal" might look like for your wallet and the housing market over the coming months.

Why Geopolitics is Driving Your Interest Rate

For those following the bond market, the connection between a conflict in the Middle East and a mortgage in the Midwest might seem distant, but the link is oil.

The conflict has heightened concerns regarding the Strait of Hormuz, a critical chokepoint for roughly 20% of the world's petroleum. As energy prices spike—with Brent crude jumping over 15% to roughly $85 per barrel in early March—inflationary fears have returned to the forefront.

The ripple effect works like this:

1. Energy Costs Rise: Higher oil prices increase the cost of shipping and transportation.
2. Inflation Expectations Spikes: Investors fear that these costs will seep into consumer prices, keeping inflation above the Federal Reserve’s 2.0% target.
3. Bond Yields Climb: As inflation fears rise, investors demand higher returns on Treasury bonds.
4. Mortgage Rates Follow: Because mortgage rates closely track the 10-year Treasury yield, they have edged back up after a brief dip.

The Current Snapshot: Rates at a Glance

After a promising start to the year where many expected rates to stay in the 5% range, we have seen a psychological shift back to the 6s.

What to Expect in the Coming Months

Looking ahead, the "wait and see" approach has become the dominant strategy for both the Federal Reserve and individual consumers. Here is the outlook for the next quarter:

• The Fed on "Pause": The Federal Reserve was previously expected to cut rates multiple times this year. Current futures markets now suggest the Fed may be "paralyzed" in the short term, likely holding rates steady at their March 17-18 meeting to see if the energy shock is temporary or prolonged.
• Housing Market "Lock-in": With rates hovering back above 6%, the "lock-in" effect—where homeowners stay put to keep their lower existing rates—is expected to persist, keeping housing inventory tight through the spring.
• Volatility is the Only Constant: Expect "headline sensitivity." Any news suggesting a de-escalation in the Middle East could see rates retreat as quickly as they rose, while further disruptions could push them toward the 6.5% mark.

The Bottom Line

While the sudden uptick is disappointing for those looking to buy or refinance, it is important to maintain perspective. Rates are still nearly a full percentage point lower than the 7%+ highs we saw in 2025.

For now, the market is pricing in a "geopolitical risk premium." If the conflict remains contained, we may see a return to a downward trend by early summer. However, for the next 60 to 90 days, the keyword for borrowers and investors alike is patience.