Key facts
- US housing demand has been impacted by rising mortgage rates, influenced by the Iran conflict and a trade war with Canada.
- Purchase application data and pending home sales have recently shown negative year-over-year prints after a period of growth.
- Mortgage rates above 6.64% have historically correlated with a slowdown in housing data.
- Inflation remains above 3% year-over-year, contributing to the Federal Reserve's hawkish stance.
- Despite oil price levels that might normally ease hawkishness, conflict uncertainty sustains it.
The U.S. housing market, which had shown signs of growth earlier in the year driven by lower mortgage rates, is now facing headwinds due to geopolitical tensions and monetary policy. The ongoing conflict in Iran, coupled with a renewed trade war with Canada, has contributed to a hawkish stance by the Federal Reserve, pushing mortgage rates above the critical 6.64% threshold.
Recent data indicates a slowdown in housing demand. Purchase application data, which typically forecasts 30-90 days ahead, has recently posted negative year-over-year prints after a period of strong growth, including ten weeks of double-digit increases. Similarly, weekly pending home sales have also seen a decline compared to the previous year. While total pending home sales are still showing positive year-over-year figures, the growth rate has significantly decelerated.
Analysts note that mortgage rates consistently above 6.64% have historically led to a downturn in housing data. Despite current oil prices that might typically suggest a less hawkish Federal Reserve, the uncertainty surrounding the Iran conflict and the trade dispute with Canada provides justification for continued monetary tightening. Inflation, measured by PCE, remains above 3% year-over-year, further supporting the Fed's cautious approach.