By Dave Meyer | On the Market
Rising tensions in the Middle East often lead investors and homeowners to wonder: What does this mean for mortgage rates, home prices, and the broader US economy?
In this article, I’ll break down key insights from recent events, including the US airstrikes in Iran, and share how different conflict scenarios could shape inflation, interest rates, and the housing market.
⚡ Current Situation: Middle East Tensions Escalate
This past week, the US launched airstrikes targeting nuclear sites in Iran. These actions, tied to Israel’s conflict with Iran, have sparked global questions about whether the situation will de-escalate—or turn into a drawn-out conflict.
At the time of writing (June 24), a ceasefire appears to be in place, but it remains fragile. Investors are watching closely: Will this remain a short-lived clash, or could it spiral into a larger military engagement?
🔍 Why Past Wars Don’t Give Us Clear Answers
While we can look to history for clues—World War I, WWII, Korea, Vietnam—modern conflicts are different. Past wars often involved full societal mobilization and drafts. Today, conflicts are more likely to be proxy wars or limited engagements.
So, what could happen now? The effects on the economy depend heavily on whether this stays contained, expands into a proxy war, or becomes a direct military confrontation.
🕊️ Scenario 1: Limited Engagement — Little Impact
If this situation stays contained—like many short-lived US airstrikes in the past—the broader economy may see minimal impact.
In fact, markets this week have mostly shrugged it off: stock prices remain stable, and oil prices have dropped back to levels seen before the strikes.
If diplomacy holds, we likely won’t see major changes to mortgage rates or housing prices.
🪖 Scenario 2: Proxy War or War of Attrition — Subtle but Important Risks
A more plausible scenario is a proxy war: the US financially supports Israel without deploying large numbers of troops.
In this case, the US would spend billions on weapons and aid—boosting certain sectors like defense manufacturing. In the short run, this might increase GDP and stabilize some jobs.
However, there’s a catch: national debt.
The US is already $36–$39 trillion in debt.
Large, ongoing military spending could push that to $50 trillion within the next decade.
If spending outpaces revenue, the Fed may print more money (quantitative easing).
Why does this matter for housing?
If the dollar weakens or inflation rises, bond investors may demand higher yields. When bond yields rise, mortgage rates often follow. This could keep mortgage rates higher for longer—potentially cooling housing demand and pressuring prices.
⛽ Scenario 3: Direct Military Conflict — Bigger Economic Shocks
If tensions escalate into a direct conflict with Iran or another power, the effects could be sharper.
Key risks:
✅ Higher oil prices. Iran could block key oil shipping routes, pushing oil back above $90–$100 per barrel. This would:
Raise gas and shipping costs.
Increase construction costs.
Add upward pressure on inflation.
✅ Increased deficit spending. Large-scale war spending historically leads to tax hikes.
During WWI, the top income tax rate jumped from 15% to 77%.
WWII, Korea, and Vietnam also brought new taxes and surcharges.
It’s unlikely the US could sustain major war costs and continue tax cuts at the same time.
✅ Upward pressure on mortgage rates. Higher government borrowing can drive up bond yields, which pushes mortgage rates higher.
🏠 Bottom Line: What Should Real Estate Investors Do?
As of today, diplomacy looks possible—but we don’t know if it will hold. Smart investors should:
Monitor oil prices and bond yields for early signals.
Prepare for rate volatility. Lock in low rates if you can.
Diversify portfolios. If inflation spikes, real estate often holds value better than cash.
Stay informed and flexible—today’s uncertain headlines could shift your investing plan tomorrow.
✅ Final Thoughts
Hopefully, this breakdown gives you context for how military conflicts can ripple through the US economy and housing market.
As always, stay calm, watch the fundamentals, and adjust your strategy if the situation escalates.
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