The spring real estate market is underway, but mortgage rates have just climbed

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 the mortgage rate. They were expected to be lower this year as the Federal Reserve lowered its interest rate to counter inflation, but the war with Iran reversed that. The cost of oil is skyrocketing, causing inflation to rise and forcing the Fed to reconsider.

Today, US interest rates are rising, followed by mortgage rates.

The average rate on the popular 30-year fixed mortgage started this year declining, even briefly falling below 6% in late February, but it 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 below where it was a year ago.

Higher rates will weigh on affordability, but other factors have tilted 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 be.

“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,” wrote Jake Krimmel, senior economist at Realtor.com, in a weekly report on housing trends. “Everything seems much more unstable and uncertain than just a month ago.”

For 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 waiting. This may be because potential sellers who were hoping to put their homes on the market are holding back due to concerns about the implications of the war in Iran.

“I think inventory is the biggest driving factor,” said Jonathan Miller, director of markets at StreetMatrix, a real estate market data provider. “The idea that rates are going to fall significantly this year, I think, is generally off the table.”

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

For example, in February, active listings in Las Vegas, Seattle, Cincinnati and Washington, D.C., were all up more than 20% from last year, according to Realtor.com. Enrollments in San Francisco, Chicago, Miami and Orlando, Florida, were lower than a year ago.

Home prices have been falling for much of last year, and that trend continues. Prices were only 0.7% higher in January than in January 2025, according to Cotality. This is down from the 3.5% annual growth recorded at the start of 2025. Rising mortgage rates, however, are undermining this improved affordability.

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

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

“Ultimately, locations with consistent job growth will remain the primary drivers of price appreciation, but they also have larger inventory deficits that put pressure on housing prices,” wrote Selma Hepp, chief economist at Cotality, in a recent report.

When it comes to new construction, buyers will likely see better deals this spring as builders struggle to clear an oversupply of homes. Inventories reached a 9.7-month supply level in January, according to the U.S. Census, as sales fell to their lowest level since 2022. A growing share of builders cut prices in March, according to the National Association of Home Builders.

“Affordability for buyers and builders remains a major concern,” Bill Owens, president of the NAHB, said in a statement. “Many buyers remain waiting for interest rates to fall and due to economic uncertainty. Builders face high land, labor and construction costs and nearly two-thirds continue to offer sales incentives in an effort to firm up the market.

Construction of single-family homes also declined in January. While some blame the weak new home market on harsh winter weather, builders are constantly battling affordability, both for their customers 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,” Miller said.