Mortgage Rates Rise As Oil Prices Cause Inflation Concerns

The last 2 weeks have been a gut punch for mortgage rates. After falling to 4 year lows, the situation in the Middle East has caused oil prices to surge and mortgage rates to shoot higher as a result. Many are calling it "the largest oil supply disruption in history". It's another perfect example of just how hard it can be to predict where mortgage rates are heading. Even today, news that Trump will allow some Iranian ships to export oil through the Strait of Hormuz has sent oil prices and mortgage rates lower, at least temporarily, this morning.

The average rate on a 30-year fixed rate conventional loan jumped to 6.214%, up from 5.9% on March 2nd. A brutal 2 weeks! Hopefully, we see a turnaround. See what rates we're offering by signing up for our Friday rate texts.

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How Oil Prices Affect Mortgage Rates

Oil prices have surged past $100 a barrel — their highest since 2022 — as the U.S.-Israeli war with Iran has virtually shut the Strait of Hormuz, cutting off roughly 20% of the world's oil supply. Despite a historic release of strategic reserves by the U.S. and other G7 nations, prices remain elevated, with major banks forecasting oil could hit $150 or even $200 a barrel if the conflict drags on.

February CPI came in exactly as expected at 2.4% annually, with core CPI at 2.5% — the lowest core reading since March 2021. Rent posted its smallest monthly increase since January 2021, and core goods categories like used vehicles and auto insurance actually declined. January PCE — the Fed's preferred inflation gauge — came in at 2.8% annually with core at 3.1%, both roughly in line with estimates. Taken together, the picture heading into March was one of inflation that was sticky but not accelerating, and an economy slowing in an orderly way, which would normally be good for mortgage rates.

But none of it mattered. Markets barely reacted to the CPI report, and for good reason — these numbers are already ancient history. Both reports predate the Iran war and the oil shock that followed, and traders know it. The February CPI is, as one strategist put it, the calm before the storm. With oil above $100 a barrel and banks forecasting $150 or higher, the March inflation print is expected to look dramatically worse as energy costs filter through to gasoline, transportation, and consumer goods across the board. The Fed meeting this Wednesday is virtually guaranteed to be a hold, and markets have already pushed their rate cut expectations out to September at the earliest — with some economists now questioning whether cuts happen at all in 2026.