Oil Wars and Housing: What the Data Suggests

Last week was good because housing was stabilizing. Mortgage rates had drifted back toward 6%. Inventory was rising year over year. Price growth had cooled to low single digits nationally. Not a boom nor a bust. A market slowly normalizing after several years of rate sticker shock.

Then weekend war headlines hit. Oil spiked.

That matters, not because war directly changes housing, but because energy feeds inflation expectations, inflation expectations move bond yields, and mortgage rates follow bond yields.

That’s the chain.

War / Housing History

To understand what happens next, history gives us three kinda-recent reference points. (unfortunately)

The Gulf War (1990–1991) brought a sharp oil spike after Iraq invaded Kuwait. But it was brief. Supply stabilized. Oil retraced. Inflation didn’t become entrenched. Mortgage rates didn’t surge. Housing didn’t structurally break. It was a shock… not a regime change.

The 1979 oil crisis was different. Oil prices doubled within about a year. Inflation accelerated. Mortgage rates didn’t edge higher, they moved up into the upper teens causing affordability to collapse. That wasn’t a “war hurts housing” story. It was an inflation and rates story.

Post-9/11 is also instructive, even though it wasn’t oil-driven. The geopolitical shock was enormous. But rates were cut aggressively. Bond yields fell. Housing strengthened in the years that followed (well before the excesses that led to the GFC). That episode reinforces the core point: housing reacts to rates, not headlines.

What Makes Today Different

The U.S. economy is far less oil-intensive than it was in the 1970s. Domestic production is higher. Energy efficiency is better. We have energy from many more sources now. Our addiction is still energy – just not only oil. One would guess that this lowers the odds of a 1979-style inflation spiral.

But housing today is extremely rate-sensitive because affordability is already stretched. The monthly payment on a median-priced home swings meaningfully with small rate moves.

If oil’s spike is temporary, bond yields would likely stabilize and mortgage rates can resume drifting lower. (fingers crossed) In that scenario, housing continues its slow normalization: rising inventory, modest price growth, cautious buyer re-engagement.

If oil stays elevated and lifts inflation expectations, the 10-year Treasury will respond. Mortgage rates would likely follow. Even a half-point higher materially changes purchasing power. Volume slows first. Days on market extend. Price growth cools further, especially in affordability-constrained markets.

What’s not present today also matters. There is no systemic overbuilding. No widespread speculative leverage like 2006–2008. Supply remains structurally tight relative to history. That makes a broad price collapse from geopolitical tension alone unlikely.

What the Data Suggests On Housing

Housing is not rocket science.

War influences oil.
Oil influences inflation expectations.
Inflation expectations move bond yields.
Bond yields move mortgage rates.
Mortgage rates move housing activity.

The Gulf War suggests short oil shocks fade. 1979 reminds us sustained energy inflation changes the housing math. Post-9/11 shows rate cuts can actually strengthen housing.

Right now, this looks like a wait-and-see moment, not a panic moment.

In time, the bond market will tell us which template applies.