The whipsawing of mortgage rates from multiyear lows in February to multimonth highs in March underscores heightened economic volatility gradually beginning to undermine spring homebuying activity.
For the housing finance industry, that volatility begins and ends in mortgage capital markets, where benchmark indexes help set market mortgage rates — and where closed loans are ultimately bought and traded by end investors like insurance companies, hedge funds, foreign governments and Fannie Mae and Freddie Mac.
As households report souring economic outlooks since the war in Iran began on Feb. 28, average rates for 30-year fixed-rate mortgages have spiked to their highest levels since the first week of October, rising to 6.43% as of March 20, according to the Mortgage Bankers Association (MBA).
“Global political and economic turmoil have upended all positive indicators the financial markets had started the year with,” noted a new monthly market update on mortgage servicing rights (MSRs) and prepayment speeds produced by Mortgage Capital Trading (MCT), a mortgage capital markets advisory firm.
Servicing release premiums “remain relatively strong,” the company said, while typical bulk MSR portfolios continue to trade at servicing fee multiples at or above 5 times fair market value. Newer 2024 and 2025 vintages are trading slightly lower, between 4x and 4.5x multiples.
“The current global crisis isn’t just raising prices,” the analysis added. “It is also slowing economic growth around the globe.”
Slowing growth typically sets the conditions for easing interest rates by central banks. But fallout from the global energy shock due to the Strait of Hormuz closure has boosted inflationary pressures for myriad goods and services, the duration and severity of which remain highly uncertain.
Though still less than likely, odds have risen among federal funds futures traders that a once unthinkable Federal Reserve rate hike could be on tap for later this year.
Like sunlight trained through a magnifying glass, localized impacts on the mortgage industry include burning refinance demand in March, according to MCT. This has slowed new loan production, particularly among borrowers with higher rates from recent originations.
From Feb. 27 to March 20, an MBA index cited by MCT that tracks refinance application volumes — and serves as a proxy for borrower demand — was down nearly 30%.
The inflection point that the Iran conflict may ultimately shape up to be for mortgage demand through the rest of 2026 reversed what in February had been a “significant surge in refinancing activities,” boosted by lower interest rates, the MCT analysis read.
For the foreseeable future, lenders and investors should prepare for additional volatility, MCT warned, as yields for short-term and longer-term U.S. government debt increase and a flattening of that yield curve “signals the potential for more economic challenges ahead.”
