Stagflation Fears Threaten Spring Housing Market as Oil Hits $100 a Barrel

The U.S.-Israeli war with Iran threatens to derail the crucial spring housing market as oil prices soar, raising the specter of stagflation and rising mortgage rates.

On Monday, as the war entered its 10th day with the path to resolution uncertain, West Texas Intermediate crude hit $100 a barrel. It marked a key level not seen since summer 2022, when spiraling inflation hit a 40-year high.

Gas prices have already jumped, with the U.S. national average price for regular grade hitting $3.48 a gallon on Monday, up 16% from last week, according to AAA.

Oil prices also have ripple effects on prices throughout the economy, from airline fares to groceries, as companies grapple with higher fuel and transportation costs.

President Donald Trump has vowed that oil prices "will drop rapidly when the destruction of the Iran nuclear threat is over," writing on his Truth Social platform that the oil price shock "is a very small price to pay" for peace and security.

For the housing market, the oil shock comes at the onset of the spring housing season, the most active time of the year for homebuyers and sellers. In addition to the potential blow to consumer confidence, the crisis threatens to send mortgage rates surging as bond markets react to inflation risk.

In some regard, the situation reflects the disruption from Trump's "Liberation Day" tariff announcement last spring, says Realtor.com® senior economist Jake Krimmel.

"This is the second time in as many years we have seen panic and uncertainty injected into global financial and commodities markets," says Krimmel. "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."

Last year's disappointing spring housing market derailed home sales for the third year in a row, as tariff headlines dented consumer confidence, the Fed paused rate cuts, and mortgage rates rose. Consequently, 2025 was one of the slowest years for the housing market in decades.

"The worry in 2026 is that history is repeating itself, or at least rhyming," says Krimmel. "While it's too early to tell right now if the war, rising prices, uncertainty, or potentially higher mortgage rates are disrupting people's home search, this will become much more clear in the coming weeks."

Krimmel notes that until the war began, 2026 had been shaping up to be a promising year for homebuyers, with mortgage rates hitting a three-year low of 5.98% in late February.

Realtor.com housing data for February also showed a welcome increase in new listings and a bump in pending home sales, providing early indicators of a strong spring season.

However, because the bond markets that dictate mortgage rates are highly sensitive to inflation, the average mortgage jumped back above 6% last week and is expected to climb higher as long as the oil shock persists.

Recession fears, which had gradually faded away, are also resurgent. On prediction marketplace Polymarket, the probability of a recession in 2026 surged above 40% on Sunday, a level not seen since last fall.

"Like 2025, the economic panic and uncertainty alone could be enough to torpedo momentum in the housing market," says Krimmel. "The American economy and consumer is 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."

What stagflation would mean for mortgage rates

Stagflation is marked by surging unemployment combined with high inflation. It is one of the most dreaded situations for the economy, because it defies the normal management tools of the Federal Reserve.

The Fed uses higher interest rates to fight inflation and lower rates to stimulate the job market, leaving the central bank in a dilemma when both sides of the mandate are in crisis.

The most prominent historical example of stagflation arose from the 1970s oil crisis, when an oil embargo from Middle Eastern producers sent the price of crude oil skyrocketing.

It triggered a recession amid soaring prices, forcing the Fed to raise its benchmark interest rate in the middle of an economic downturn. Mortgage rates topped 10% even as the unemployment rate hit 9%, a painful combination for the housing market.

A similar outcome is far from assured in 2026, and a quick resolution to the Iran war and resumption of normal oil trade through the Strait of Hormuz could quickly put the economy back on a positive track.

However, if the war drags on, or if rogue Iranian commanders continue to threaten regional shipping traffic even after a ceasefire, elevated oil prices could have profound ripple effects on the economy.

The Fed, already in a holding pattern on interest rates, would likely push back its outlook for the next rate cut. If inflation appears poised to spiral, a rate hike could even be on the table, a scenario Cleveland Fed President Beth Hammack has already warned of.

“There are two-sided risk 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 target as I expect, it could mean that we need to put more restriction on the economy.”

Although the Fed doesn't control mortgage rates, a renewed surge in inflation would put immediate upward pressure on mortgage rates, eroding the affordability gains seen in the first few months of 2026.