The impact of the Iran war is hurting Trump's plan to boost the US housing market

• The Iran war is affecting the housing market and hurting part of Trump's plan to boost affordability.
• Mortgage rates have climbed as markets adjust to the outlook for hotter inflation.
• Mortgage applications have tumbled since the war began nearly one month ago.

It wasn't long ago that the White House had declared "real progress" in President Donald Trump's plan to restore the American dream of owning a home. The president unveiled an arsenal aimed at lowering borrowing costs and helping prospective buyers break into the housing market, among them pushing a 50-year mortgage and banning big investors from purchasing homes.

But a rejuvenated housing market looks less within reach now as markets eye the implications of the Iran war, which has soured the outlook for mortgage rates and made prospective buyers even more skittish about buying a home.

Mortgage applications plunged 10% in the week leading up to Wednesday, the Mortgage Bankers Association said. Refinancing activity also dropped 15% from the prior week, despite being up on a year-over-year basis.

The drop in applications was largely due to higher rates and general economic uncertainty stemming from higher oil prices, according to Joel Kan, MBA's deputy chief economist.

The 30-year fixed mortgage rate rose to 6.38% in the last week, up 16 basis points, according to data from Freddie Mac. It's the highest the 30-year rate has been since September, around the time the Fed cut rates at its policy meeting.

The 10-year US Treasury yield, which influences borrowing costs like mortgage rates, also rose to 4.47% on Friday, up 51 basis points from prior to the start of the Iran war.

In markets, the fear is that higher oil prices could stoke inflation, leading interest rates to stay higher for longer as the Fed aims to get price growth under control.

"The threat of higher-for-longer oil prices continued to keep Treasury yields elevated, and mortgage rates finished last week higher," Kan said, adding that the combination of higher rates, affordability constraints, and economic uncertainty was pushing some potential buyers out of the market.

"The primary driver behind this month's volatility continues to be the geopolitical conflict in the Middle East," Lisa Sturtevant, the chief economist at Bright MLS, said, adding that the increase in rates looked like it was a "significant headwind" to the spring homebuying season.

"As a result, the 'psychological' sub-6% environment we briefly enjoyed in February has been replaced by a more cautious, high-volatility climate," she added.

The Center for American Progress estimated that the recent increase in mortgage rates since the war in Iran had increased lifetime mortgage costs by around $22,000, assuming a person purchased a median single-family home with a 10% down payment.

"The war in Iran is costing billions of taxpayer dollars while Americans are getting squeezed with higher energy and housing costs. Despite President Donald Trump's reported claim that no one cares about housing, his war with Iran is actively fueling the affordability crisis," the nonpartisan institute said in a report.

The White House did not immediately respond to a request for comment from Business Insider.