Peace Deal Signed: The Surprising Twist That Could Send Mortgage Rates Soaring or Crashing—What Every Investor Needs to Know Now

Dave:
The conflict in Iran put a dent in the spring housing market this year as uncertainty rose alongside mortgage rates. But as of this weekend, the US and Iran have signed a memorandum of understanding aimed at calming tensions in the region and limiting economic damage. So what happens to the housing market now? Could this peace deal be the shot of life the market needs or are we in for more of the slog that we’ve been in for the last four years? Today on the show, we’re going to unpack this and examine what a deal with Iran means for the economy and the housing market. Where does inflation go from here? What about interest rates and housing demand? And ultimately, what should investors be concentrating on in the second half of 2026? This is On the Market. Let’s get to it.
Hey everyone. Welcome to On The Market. I’m Dave Meyer, Chief Investment Officer at BiggerPockets. Today on the show, we are tackling the big news from last week, the US signing a tentative deal with Iran, or at least a pause in fighting to hammer out a long-term deal that will hopefully lead to a lasting piece and to help calm economic anxiety and the inflation that we’ve seen uptick over the last couple of months. And today we’re going to talk about this on the show because as we have seen very clearly in the last year, geopolitical issues as far reaching as the Middle East can and certainly do impact housing and investor realities. This conflict has already made a big impact on real estate this year and it’s likely to continue to do so. So we all need to understand what is likely to happen next. So let’s dive right in.
First of all, let’s talk about what happened last week. Over the weekend, something called a memorandum of understanding was signed. It is not a long-term deal. It’s basically a 60-day extension of the ceasefire so that both parties have time to negotiate terms of hopefully a final long-term deal. And although there are many, many provisions in this document for real estate investors, for us and for the economy really, the main thing that we should be taking note of is that the strait of hormones is supposed to open. Like the US lifts the blockade. Iran agrees to not threaten or attack tankers that are going through the strait of hormones and hopefully that will restore trade that has been bottled up for the last three months. And we all know this by now, right? This is a pretty big deal. We’ve seen oil prices go up. We’ve seen fertilizer prices go up and general inflation go up pretty rapidly over the last three months because normal shipping hasn’t been happening.
We’ve had what is known as a supply shock in many of the biggest industries in the entire world and that is causing not just economic anxiety, but some real pain in the economy, not just here in the US but across the entire world. Now we’re not going to get into this a ton today because this is a housing and economic show, but the deal notably doesn’t include anything about nuclear weapons, which is obviously important. The fact that there isn’t anything about nuclear weapons in there to me means that this deal is pretty tentative. It’s a little bit fragile. We haven’t hammered out some of the big, thorniest issues here. So I hope that we have a lasting piece, but there’s still a lot of uncertainty about the long-term prospects of a deal and the straight of hormones. All that said, for today’s episode, we are going to presume the strait of hormones is open in the next week or so and that it stays open for the rest of the year.
So to me, the big question about the straight hormous opening really just comes back to inflation. I know we talk about this all the time, but this is so important to the entire economy, to monetary policy, to mortgage rates, to consumer confidence. So much of it comes down to inflation. So we have to ask ourselves, if we’re wondering what happens next with the market, ask yourself first, what happens to inflation? Because inflation is crucial to the housing market in two ways. First, it impacts buyer demand, right? Because people are spending their money elsewhere, they just don’t have money to go out and buy a home, or they don’t have money to pay more for a rental that you just renovated and looks beautiful and you want to rent out. The second and more direct impact inflation has is on mortgage rates because when inflation goes up or even when inflation expectations go up, bond yields rise and when bond yields rise, so do mortgage rates.
And that’s exactly what we’ve seen this spring. The war choked off oil and LNG and other materials that create bidding wars. There’s not enough of that stuff. This is a supply shock. There’s not enough supply that creates bidding wars for the remaining supply and that pushes up prices. This is why you see the CPI, the consumer price index, our primary measure of inflation in the United States at 4.2% year over year, which is more than double the Fed’s target. And although inflation has been a problem, it seems like for five, six years now, the recent inflation spike, basically what we’ve seen in 2026 has been mostly driven by energy prices by oil and liquified natural gas, not entirely as we’ll talk about in a minute, but a lot of what we’ve seen in the last couple of months and why it’s gone up so quickly recently has been because of this supply shock.
So then if inflation is what we really need to forecast and the driver of recent inflation is removed because the strait of hormones is open and in theory, oil will flow again, does that mean inflation will fall? And if so, when will it fall? There is an optimistic case to this and an optimist would say straight opens, inflation peaks sometime soon, probably in Q3 in the next couple of months, and then it starts to ease in the coming months and by the end of the year, we’re back down to where we were before the war and that can certainly happen if the strait stays open. But I should say that is not the consensus view. That is the optimist view of what’s going to happen over the next couple months, but it’s certainly possible.That does make logical sense. But the consensus view is more of what’s called, I would call the quote unquote warm for a while theory, right?
It’s just going to stay warm, not hot. It’s not going to accelerate from here, but it takes a little bit of time for inflation to work its way through the system. Oxford Economics, for example, a big forecasting firm projects that the CPI is going to top out somewhere in the four and a half to 5% range. Remember, we’re at 4.2 now, so that’s going up, but not that much more. No one wants to see inflation at four and a half or 5%. That is a lot. It’s above wage growth. It’s not good, but we’ve gone up from basically two to 4.2 in three months. So seeing that it’s going to level out, I think is a relatively good sign. But what Oxford Economics is saying, even though it will peak in the next few months, it will probably not start really cooling till next year into 2027.
So this is, I think, a realistic case. This is kind of the theory that I subscribe to. It’s not the most exciting news, but it’s also far below 9% inflation that we had in 2022. It’s just not a really quick fix. And if you’re wondering why it’s not going to just go back down, why I don’t personally buy the optimist case is the most likely scenario right now. It’s for two reasons. The first and foremost, when supply chains get disrupted like they have been, it takes a while for them to turn back on and to flow normally, right? There’s this huge backlog of tankers that have just been sitting in the straight of hormones. When you shut down an oil well, I didn’t know this till like three months ago, but obviously everyone, maybe people know this now, when you shut down an oil well, it takes quite a long time to turn it back on.
And so we’re not going to get back to the same production and shipping levels immediately if the strait of hormous opens. And I also think it’s going to take a little bit of time for the straight hormous to open. There’s tons of mines sitting in the water, right? They have to get rid of that. Shipping companies have to decide if they’re willing to take the risk during a tentative peace treaty to send ships through the strait of hormones. So I think it’s going to take a while for oil to come back down specifically. The second thing that’s going on is that the inflation number is not just driven by oil. That’s why it went up so quickly, but there are other inflationary pressures in the economy that might not be going away. And there is evidence that this is what’s happening. This isn’t just my theory.
If you look at the data, this kind of tells us that there are other things going on here. With inflation in the United States, we usually measure two numbers. We have the headline number, which is that 4.2% CPI and then there’s something called the core CPI and this is all prices except food and energy costs. So you strip out food costs, you ship out oil, LNG, electricity, because they’re very volatile and economists and forecasters use this core number to understand what’s going on with more sticky prices. So things like goods and services that don’t move as much as energy and food prices. And what we see if you look at the CPI or you look at the PCE, which is another measure of inflation, it’s actually what the Fed uses to measure their, that’s what they use to measure inflation. If you look at both of those, the core price, so even stripping out oil prices, even stripping out food prices, the core is going up.
Core CPI was about two and a half in February. It’s up to 2.9% in May. So it’s not crazy. That’s how we know oil is the primary driver because the core hasn’t gone up as much as the headline CPI, but it’s moving in the wrong direction even though it doesn’t include food or energy. The same thing is going on with the PCE, that’s the Fed’s measure of inflation. Core there is up 3.3%. Another reason why we should not be expecting Fed rate cuts, which we’ll talk about in just a second. So overall, what you should be taking away from this is that it seems that the inflation situation is more complex than just oil. So what is driving it? If it’s not just oil and fertilizer and food prices, what’s driving up inflation? Well, number one is tariffs, right? They are still contributing to higher prices.
That is hopefully going to level off in the rest of the year because tariffs were implemented mostly in 2025 and the economic theory is that tariffs contribute to a one-time price increase. And so since most of them were implemented in 2025, those price increases have been working their way through supply chains and through pricing and that will come to an end at some point. It might not go away completely, but the majority of the tariff price increase pressure will probably work its way through the economy over the next couple of months. So again, another reason why the consensus view about inflation is that it’s going to stick around for the rest of the year and then it will start to come down. Oil prices will come back to earth and some of the tariff pressure will go away, but that is not the only thing contributing to inflationary pressure.
We still have shelter prices up a lot. This lags a lot, but it’s up 3.4%. That carries a lot of weight in the calculations of the core CPI and so that’s pushing it up. And then the third one that people don’t really talk about as much, but economists care about a lot and the Fed cares about a lot is service inflation. In economy, they’re both services and goods, goods are physical things that you can pick up and touch. Services are things like shelter or like going to get a haircut or getting your car fixed. The reason economists care about service inflation is because they are stickier. Usually, almost always when you see service prices go up, they don’t come back down. Goods are a little bit different. If a price of a car goes up, sometimes they go back down. We’ve seen that with used cars.
They went up a lot during COVID, now they come back down to earth. Goods are much more volatile. They’re a little bit more flexible and ebb and flow with the economy. Services, not so much. I don’t know about you, but I’ve never seen my plumber lower their price once it’s gone up. If labor’s 75 bucks an hour, it’s never gone back down to 60 bucks an hour. I went and got my car fixed yesterday. The labor was $175 an hour, right? I don’t think they’re going back down just because the strait of Hormuz opened. And so this is something that the economists and the Fed care a lot about and this is up. If you actually look at the CPI and the data, goods prices are actually flat. So that’s good, right? It’s good that goods are flat, but services are driving the core CPI and that’s why the Fed are going to be very conservative about this because rightfully because they have evidence that that is stickier and harder to get rid of, which means they’ll probably be more aggressive about fighting it.
And this is really why there are skeptics about inflation coming down quickly. We got tariffs, we have oil that might take some time to come down. I didn’t even mention this, but AI data centers pushing up energy prices, right? Even though the Strait of Hormuz opens, electricity prices in the US up 6% this year, right? That’s probably not going away anytime soon. Service prices won’t go back down. Food prices are likely to keep going up for the rest of the year. So while there is a range of opinions here, I don’t believe the most optimistic case is the most likely case. It could happen, but I think the most likely scenario is that inflation peaks in Q3. So that’s sometime between July and September of 2026, but then it comes down pretty slowly and it takes a while to get back to where we were before the conflict in Iran started.
Again, all of this is with the caveat that the peace deal holds. If it doesn’t, inflation’s going to keep going up. But if this rate stays open, I don’t really see any forecast or really see any logic that says inflation’s going to go up to six, seven, 8%. So that’s the really good news here, right? We’re going to limit how bad it gets. The question to me is really how long it takes to get back down to normal because that’s what’s going to dictate mortgage rates, right? So what does this mean for real estate investors and for the housing market? We got to take a quick break, but after that, we’ll get into where mortgage rates are heading and what you should be doing as an investor. Stick with us.
Welcome back to On the Market. I’m Dave Meyer. Today on the show we’re talking about what happens now. Now that we have a memorandum of understanding with Iran and the Strait of Hormuz is set to open, what happens to mortgage rates and to the housing market? Before the break, I explained that to me this is really all about inflation. If you want to forecast what’s happening, what’s going to happen, it really matters what’s going to happen with inflation. And as I told you, I think the most likely case here is that it peaks sometime in the next couple of months, but it takes a while to come down. And so what does that mean for real estate? Well, first to me, it means I don’t think we’re going to see rate cuts anytime soon. I actually don’t really even think this truce matters all that much to the Fed.
They track an inflation measure called the PCE, particularly the core PCE and it has just been going up. It went up in March, it went up in April, it’s going to go up in May. I know it’s June, but the data takes a month. So it’s going to go up in May and they need to see this come down before they make cuts. Ideally, they see it stop, come down for a couple months and then they make cuts, but right now it is still rising. So the inflation rate is just too high for them to cut and at the same time, the labor market is strong enough to give them the runway to do this. If the labor market was falling apart, they would have some hard decisions to make. But if you look at recent jobs numbers, they’ve been strong. The unemployment rate remains relatively low and although the labor market is not perfect by any means, there’s a lot of underemployment, there’s a lot of things going on beneath the surface, it’s good enough to allow them to keep the federal funds rate where it is.
So don’t expect rate cuts, but in recent shows, we’ve been talking about the fact that the Fed has been signaling that a rate hike is likely. They actually have been saying this pretty publicly. I saw something, I think it was Bank of America said they thought there might be three rate hikes over this year. I am not so sure about that. To me, this might be the one thing that Truce does to help interest rates in the short term is that I think knowing that some of the main pressure driving inflation will make the Fed more cautious to hike rates. If the straight overs remain closed, inflation kept going up and that pressure was just building and building and building as shipping could not resume, they would have raised rates in my opinion. But the fact that this is opening and there is a path to lower inflation to me signals that they’re probably going to be more patient with inflation.
Not going to cut rates, but I think they’re going to keep it what it is for longer. And so to me, that is the one good news that we’re seeing here. So if you’re expecting mortgage rates to fall now because the strate of hormones is open and the Fed’s going to cut rates, I wouldn’t count on that. First, they aren’t that closely correlated. So even if the Fed cuts rates, mortgage rates, they won’t move because of that. And then secondly, they’re probably not going to cut anytime soon. So don’t count on that. But the question about mortgage rates is real. Could they actually come down for other reasons? Because as we know, the Fed doesn’t control mortgage rates. So could mortgage rates come down for other reasons? Well, they haven’t, right? Even since the announcement, the 10 year treasury has actually gone up the average rate on a third year fixed is about 6.6%.
So we haven’t seen any relief at all even since the announcement or the signing of the memorandum of understanding. And this tells us a lot. I think it tells us a lot about what the bond market thinks is going on and it shows us that they don’t think inflation is going away just yet. The bond market as a whole is saying, we’re not sold that inflation is coming down immediately and we are keeping yields higher in bond yields, right? If they believed inflation was coming down immediately, we would have seen bond yields fall and we would have seen mortgage rates come down. So this is why, again, the consensus view, it’s not just me, it’s not just the Fed or Oxford economics. The bond market, pretty powerful, pretty economically savvy group of people are saying that inflation’s going to stay higher. So the truce is not going to cause the Fed to lower rates and the truce has not caused bond yields to fall.
So the question, could the peace deal help mortgage rates? Yeah, it could, but indirectly it can help over time by removing the main catalyst for inflation, but directly, no. Until we se inflation come down, we cannot expect lower mortgage rates. And I know that is not the news most people want to hear, but it is my honest opinion. We might see them come down a little bit, maybe they’ll get back to the low to mid sixes, below 6.5%. But as of right now, I really just don’t see a likely path to rates below 6% in 2026, even if the deal holds. So given that, given that we’re not going to see relief on mortgage rates, I feel like a broken record. I know I’ve been saying this for four straight years, but my track record on this is pretty good, I think. And I want to be honest with you, I don’t want to be like the people on social media who are saying, now rates are going to come down.
It’s a perfect time to buy a house. I want you all to know what’s actually likely to happen and this is what I see as the most likely scenario. So what then does this mean for housing? If inflation’s going to stay high and mortgage rates are going to stay where they are, what does this mean? We’ve already had a slow year. Does that mean it’s going to slow down more or are there signs, are there things that could help spur activity in the housing market? We got to take another quick break, but we’ll be right back Welcome back to On The Market. I’m Dave Meyer. Today we’re talking about what happens now with the memorandum of understanding signed with Iran. As we’ve talked about today, I think inflation’s going to peak but run warm for the foreseeable future. Mortgage rates probably could come down a little bit, but they’re going to stay in the mid sixes, maybe low sixes by the end of the year and we’re not going to have a fundamental change in mortgage rates.
So what then does this mean for the housing market? Well, I think it’s the same as it’s been. Every time we have some news like this, there’s someone going on the news or in the mainstream media or social media saying, “This is going to change everything. Either it’s going to crash the market or now’s the time to buy because we have inflation and affordability is going to get better or blah, blah, blah.” But the reality is more boring. We are going to stay in the great stall. That is the most likely scenario. We might have some minor swings, rates will do what they do. They’ll fluctuate by 25 basis points or 50 basis points. Inventory will go up and down a little bit, but I am not expecting anything big to change because first and foremost, mortgage rates, we already talked about this, right? Some people will disagree, but I’m sticking to my over six and 26 headline as of now.
And even if it comes down a litle bit, I’m not expecting a big jump in demand because demand is actually doing okay. That is the good part of what’s going on right now. If you’ve listened to other episodes of the show recently, I talked about the market is actually doing better than most people think. Demand for housing, whether you measure it by pending sales or mortgage purchase applications is up year over year. And I think the truce will help sustain that, but I don’t think we’re going to see another leg up where all of a sudden people are starting to rush into the housing market if rates come down to six. I don’t really think that rates were at six in February and we had a pretty slow market. The problem of affordability remains, that has not gone away. And until that goes away, the market is not going to get that much better.
It’s what I’ve been saying for four years, but it’s still true. Affordability is a three-legged stool. There are three components that make up affordability. Home prices, mortgage rates and real wages, right? What does it cost? How much does debt cost and is your income going up faster than inflation so that your spending power is increasing? Now we talk a lot about mortgage rates because that is the fastest one, right? That moves most quickly. We don’t see prices change in dramatic fashion, at least not in the last 16, 18 years and real wages are super slow. And so mortgage rates we talked about a lot. Prices are flat. They’re down in some markets, but nationally they’re flat. So that’s not like really helping affordability and wages actually have gone in the wrong direction. This is something that was helping us for the last couple of years.
We actually saw affordability gains in the second half of 2025, first couple months of 2026 because prices being flat, mortgage rates coming down a little bit and real wages were going up That meant that payments, the average mortgage payment actually dropped 8% over about like six, seven months. So that was really good, but that’s gone in the wrong direction now. Mortgage rates are higher than they were. They’re about where they were a year ago, but they’re higher than they were when we saw these gains and real wages are now going down. Hopefully that will change, but real wages are now going down. And so affordability has gotten worse over the course of 2026. I’m super happy to say that demand is up despite this, but to think that demand is going to keep going up when affordability is getting worse, I just don’t buy it.
Affordability is too low for things to start to take off. If you look at any measure of this, the NAR, National Association of Realtors, they have this affordability index. It has us now at 35% worse affordability than 2019 than pre-pandemic levels. I just don’t see how the market fundamentally gets healthy again until affordability improves. And so that means we either need to see wages really rise, skeptical about that. Hopefully we’ll get back to positive, but I don’t think we’re going to all of a sudden get huge real wage growth. It’s been 55 years since that’s happened in the United States, so don’t hold your breath. Prices could fall.That is something that could happen. We could see prices fall, but I think worst on a national basis this year, maybe two, 3% declines. I think it’s probably going to be better than that, going to be close to flat or rates getting better and none of these things are around the corner.
So despite the headlines, the news, the people hyping up the market now that we have this deal, we’re still in the great stall. Nothing changes much for me, but there are things to watch for that could indicate things are going to change. So here are the things that I am going to be watching in the second half of 2026 and I recommend you keep an eye on as well. There are two things that would bring down rates. One would be great, one, not so much. The first is just win the battle against inflation. This is what the Fed, this is what the government needs to do. Win the battle against inflation permanently. Well, it will never be permanently, but long term. I think the truth could be the start of winning this battle so that is good, but it’s going to take some time and they need to stay the course on this if we want the housing market to recover.
So that’s number one, watch inflation. Number two, we haven’t talked about this as much, but the other thing that could bring down rates that might actually be more probable in the short term is a recession. Rising unemployment and a risk of recession brings down bond yields and brings down mortgage rates because when there is fear about the overall economy, investors pour their money into safe assets. Bonds are safe assets. And so when there is more demand for bonds, the yields fall and mortgage rates go down. So far, as I mentioned, the labor market has been okay, but there’s a lot of talk about AI, about slowing businesses, about slower hiring. And so if we start to see signs of a weakening labor market rising unemployment, that could bring down mortgage rates half a point, something like that. If it’s really bad, it could go down more than that, but I don’t really … There’s no evidence right now that we’re going to a terrible recession.
So we could enter sort of a run of the mill recession and rates could come down a little bit. If the state stays open, I think the risk of recession has gone down, but again, another reason mortgage rates are probably going to stay high, but these are the two things to look for inflation and recession, the two things you should look for to forecast what’s happening with rates in the market over the next couple of months. The second thing to keep an eye on and I will update you on is inventory, new listings and price cut data.This is the stuff that tells us if something is fundamentally changing and perhaps we’re moving out of the great stall in one direction or another. If we see any of these things go up, either inventory, number of homes for sale at any given time, new listings, how many new homes are listed for sale in a given month Or the number of price cuts that we see, if any of those three things start to spike, we’ll probably see price declines.
Again, not saying a crash, there’s no evidence that a crash is coming, but we might see some price declines and that would mean that we get better affordability and we might start to get a healthier housing market that could move us in a more positive direction. I know a lot of people think, oh, price declines, that’s not a positive direction. I kind of disagree. We need affordability to improve. Some level of reality between buyers and sellers needs to happen. I don’t think it will get out of control, but if we start to see modest increases in inventory and new listings, that could get us to 3% price declines, more in certain markets. And that improvement in affordability, I know it sounds scary to see price declines, but that improvement in affordability will bring some life back to the market that we desperately need and that could start building the momentum that is needed for a healthier housing market.
So keep an eye on those things. And the third thing to keep an eye on is looking in your own market because despite everything that I’ve said, there are still going to be pockets of strength. There are still pockets of distress. When I say the great stall, that is a national level assessment. There are still changes. And so it is super important for you to track inventory, new listings, price cut data, affordability in your market. Those are four things. It’s not hard. Go on ChatGPT, go on Claude, go on Redfin or realtor. It’s free. Go track these things in your market today and track them over time and see where they are trending because that is the best way for you to navigate the great stall. So just to summarize what happens now that we have the Strait of Hormuz opening up, not much. Sorry to be the bearer of boring news, but I just don’t expect that much of a change.
The market was not humming before the war. The best case scenario in the next couple months is we get back to where we were before the war. So why do we think now getting back to where we were in February is going to yield a different outcome. We don’t even know if we’re going to get back to where we were in February and February wasn’t good. And so thinking that this is going to ignite the market just doesn’t have any evidence. It doesn’t make any sense. So don’t get caught up in the headlines where the people saying now is the perfect time to buy real estate because it’s not the perfect time. Because there is no perfect time. There is only good strategy based on market conditions. This is the stuff we talk about always on the show and I’m just going to reiterate it.
Buy under current market comps. Be patient. Use leverage to negotiate with sellers. Find off market deals. Buy great assets in good locations at strong prices. This works in today’s market. It’s the great stall playbook we talk about over and over again. It’s what I plan to do and that’s what I recommend others do as well. That’s our show for today. Thank you all so much for watching this episode of On The Market. I’m Dave Meyer and I’ll see you next time.