How We Got Here: First half of 2026

Continuing our “How We Got Here” series on the market updates page — last time we looked at the 30-year fixed mortgage rate going back to the early 1970s and how closely it tracks inflation over the long run. This time, let’s zoom in on just the last year, because it’s a good real-world example of that same relationship playing out in real time.

A Steady Start

Throughout 2025, we saw a steady, healthy improvement in mortgage rates, moving in step with a steady decline in inflation. A year ago, rates were sitting in the mid-6% range. From there, they eased slowly and consistently downward — which is exactly the kind of trend you want to see: gradual, steady movement rather than sharp swings in either direction.

Then, in February and March of 2026, the Iran conflict began.

Why a Crisis Didn’t Bring Rates Down This Time

Here’s an important pattern worth understanding: when a major world crisis hits, mortgage rates typically trend downward, not up. That’s because investors tend to move money into safe-haven assets — U.S. Treasuries and mortgage-backed securities — when the world feels uncertain. Treasuries are about as close to guaranteed as an investment gets, and mortgage-backed securities are considered the next safest thing. Increased demand for those assets usually pushes rates lower.

What caught a lot of people off guard this time was the sheer size of the price shock in oil.

The Oil Shock

Looking at West Texas Intermediate crude prices, oil spiked almost immediately once the Iran conflict began. Two things were happening at once: Iranian oil supply was cut off or significantly reduced, and there was real concern around the Strait of Hormuz — the narrow chokepoint between Iran and Saudi Arabia that a huge share of Gulf oil exports pass through every day. Any threat to that route puts a large portion of the world’s oil supply at risk, and futures markets — pricing in what oil is expected to cost months down the road — reacted immediately.

Oil has come back down off its highs since then. As of August 2026, it’s trending around $80 a barrel, give or take. But energy is a major input cost across the economy — it factors into manufacturing, transportation, and the delivery of nearly every good and service — so a spike like that ripples outward into broader inflation.

What CPI Told Us

This is where it’s useful to understand the difference between headline CPI (Consumer Price Index) and core CPI. Core CPI strips out food and energy specifically because those categories are volatile and can swing quickly, while most other goods and services can’t reprice on a dime — a company doesn’t want to raise prices and then have to walk them back a few months later.

That’s essentially what we saw play out. Headline CPI ticked up more than core CPI in the months following the oil spike, because a lot of businesses treated the conflict as a temporary disruption. Rather than immediately passing the higher energy costs on to consumers, many absorbed the hit into their margins, betting that the situation would settle down before they needed to adjust pricing across the board.

By June and July, that bet started to look reasonable. Talk of the conflict settling down picked up. There may never be a formal peace deal, but Iran likely doesn’t have the resources to sustain the conflict indefinitely either way.

At the same time, private industry did what it tends to do when given any kind of opening — it adapted. Oman has moved to develop ports on the side of its coastline that bypasses the Strait of Hormuz entirely. Saudi Arabia reopened a decades-old pipeline to move oil from the north to the south of the country, also routing around the strait. At least one member has reportedly left OPEC (the Organization of the Petroleum Exporting Countries), which is worth watching — if Gulf oil producers act more independently rather than collectively, it could mean more competition and less coordinated pricing power over the long run.

As some of these workarounds took hold and transportation costs eased alongside lower oil prices, core CPI has come back down a bit as well.

Back to Mortgage Rates

It all correlates: oil prices rose, inflation expectations rose with them, and mortgage rates followed. Rates have fluctuated since then — there have been a few moments that looked like a turning point, only to prove premature — and they’ve settled into the mid-6% range for now.

The next real move lower likely depends on one of two things: the Iran conflict fully resolving, or clear signs that oil producers can keep supply flowing more cheaply and reliably. Either would support inflation continuing to ease, which should, in turn, support mortgage rates continuing to come down.

That said, it’s worth keeping the timeline in perspective. A year ago, in August/September 2025, rates were in the mid-6% range, and it took until March 2026 — roughly six months — for average rates to work their way down into the low 6% range. A similar move this time wouldn’t be surprising, and once conditions do improve, rates generally don’t respond immediately. It can take six to nine months after a resolution for rates to fully reflect it.

What This Means If You’re Waiting to Buy

If you’re holding out for that lower rate, it’s worth weighing what else might change while you wait. Right now, we’re seeing motivated sellers in many of the markets we work in across Texas, including San Antonio and much of Houston (parts of north Houston remain a bit more balanced), which is giving buyers more negotiating leverage than they’ve had in a while.

As a rough rule of thumb, every $10,000 increase in purchase price adds about $60 a month to a mortgage payment. So if rates were to drop enough to save you $150 a month, but the home you want now costs $20,000–$30,000 more because the market heated back up and sellers stopped needing to cut prices — that’s roughly $120–$130 a month added right back, largely canceling out the benefit.

The bigger picture takeaway from all of this: mortgage rates follow inflation, not the Fed. Day to day, they’ll jump around on jobs reports, GDP data, or world events — like an oil shock tied to a geopolitical conflict. But the overarching trend, over months and years, is always going to be pulled by inflation, one way or the other.