The spring housing market is underway, but mortgage rates just skyrocketed

Spring is traditionally the busiest season for home sales, and while market dynamics this year have shifted strongly in favor of buyers, broader forces in the economy are creating significant challenges.

The most important factor in any season is mortgage rates. They were expected to be lower this year as the Federal Reserve lowered its lending rate to counter inflation, but the war with Iran has changed that. The cost of oil is skyrocketing, causing inflation to rise and causing the Federal Reserve to reconsider.

Now US bond yields are rising, and mortgage rates are following suit.

The average rate on the popular 30-year fixed mortgage had started this year lower, even briefly dipping below 6% in late February, but rose sharply this week to 6.53% on Friday, the first day of spring, according to Mortgage News Daily. It is now just 18 basis points lower than it was a year ago.

Higher rates will impact affordability, but other factors have turned the market in favor of buyers. Homes are staying on the market longer, sellers are increasingly willing to lower prices, and the supply of homes for sale is increasing, although not as quickly as it should.

“As the housing market approaches 'best time to sell' season, it finds itself in a precarious position, caught between long-term improvements and sudden short-term instability,” Jake Krimmel, senior economist at Realtor.com, wrote in a Weekly Housing Trends report. “Everything seems much more unstable and uncertain than just a month ago.”

During the week ending March 14, active inventory was up 5.6% year over year, according to Realtor.com, but new listings were down 1.4%.

This means that the number of homes for sale is increasing not because there are many more sellers, but because homes on the market are stagnant. This may be because potential sellers hoping to put their homes on the market are holding back due to concerns about the implications of the Iran war.

“I think inventory is the deciding factor,” said Jonathan Miller, director of markets at StreetMatrix, a real estate market data provider. “I think the idea that rates are going to go down noticeably this year is generally off the table.”

Given the disparity in inventory between different markets, this spring is likely to be a story for many cities.

For example, in February, active listings in Las Vegas, Seattle, Cincinnati and Washington, DC increased more than 20% from a year ago, according to Realtor.com. Meanwhile, listings in San Francisco, Chicago, Miami and Orlando, Florida, were lower than a year ago.

Home prices had been cooling for much of last year, and continue to do so. Prices were only 0.7% higher in January than in January 2025, according to Cotality. That's down from 3.5% annual growth at the beginning of 2025. However, higher mortgage rates are detracting from that increased affordability.

The Northeast and Midwest are seeing the most price appreciation, led by New Jersey, Connecticut, Illinois, Wisconsin and Nebraska, due to tight supply in those regions, according to Cotality.

Cotality classifies 69% of major metropolitan real estate markets as overvalued, noting that undervalued markets such as Los Angeles, New York, San Francisco and Honolulu could see a rebound in prices in 2027.

“Ultimately, places with steady job growth will continue to be the main drivers of price appreciation, but they also have larger inventory shortfalls that are putting pressure on home prices,” Selma Hepp, chief economist at Cotality, wrote in a recent report.

As for new construction, buyers are likely to see better deals this spring as builders struggle to get rid of an oversupply of homes. Inventories reached a 9.7-month supply in January, according to the U.S. Census, as sales fell to the lowest level since 2022. A growing share of builders reduced prices in March, according to the National Association of Home Builders.

“Affordability for buyers and builders remains a top concern,” NAHB President Bill Owens said in a statement. “Many buyers remain hesitant waiting for lower interest rates and due to economic uncertainty. Builders are facing high land, labor and construction costs and nearly two-thirds continue to offer sales incentives in a bid to consolidate the market.”

Construction of single-family homes also fell in January. While some blame harsh winter weather for the weak new home market, builders are constantly fighting for affordability for both their clients and their own bottom lines. Land, labor and material costs have not decreased.

“I think this is not going to be an inspiring year for the real estate market. It started with high expectations. I think the war, whatever the outcome, has really dampened enthusiasm and kept uncertainty very high,” StreetMatrix's Miller said.