Middle East uncertainty could cause mortgage rates to fall

Instability among foreign relations typically drags down long-term interest rates and the latest crisis with Iran could be a catalyst for a drop in 2020, according to NerdWallet.

Additionally, the 10-year Treasury — a benchmark for the 30-year fixed rate mortgage — fell the morning after Iranian general Qassem Soleimani was killed by a U.S. airstrike. The turmoil introduces more uncertainty into the economic outlook.

"We don't know how long the crisis in the Middle East will last, or what will happen," Holden Lewis, NerdWallet's home and mortgage expert, said in a press release. "Yes, rates tend to drop in reaction to global instability, but that's a tendency, not a certainty. During a time of conflict, it's prudent to lock a mortgage rate when you're quoted an acceptable one, rather than gambling for rates to drop even further. Keep in mind that current mortgage rates are low by historical standards."

During global conflicts, investors tend to skew toward investing in safer assets like government guaranteed mortgage-backed securities. That wave of investment pulls down mortgage rates as well. The Federal Reserve said in its December outlook that it didn't anticipate big changes for interest rates in 2020 but that was three weeks prior to the events in Iran.

The 30-year fixed rate mortgage started the week at an average of 3.98% on Dec. 30 and ended at 3.95% on Jan. 3, falling an entire basis point on Friday morning, according to NerdWallet’s daily mortgage rates survey. Following suit, the average 15-year fixed also fell one basis point on Friday to 3.51%, as did the average rate on the 5/1 ARM to 4.28%. They started the week at averages of 3.55% and 4.27%, respectively.