The housing market is starting to spring, but mortgage rates are just rising

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

The most important factor in any season is mortgage rates. It was expected to be lower this year, as the Federal Reserve lowered its lending rate to combat inflation, but the war with Iran turned that upside down. The cost of oil is rising dramatically, sending inflation higher and prompting the Fed to reconsider.

Now US interest rates are rising, and mortgage rates are following suit.

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

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

“As the housing market approaches the ‘best time to sell’ season, it is in a precarious position, caught between long-term improvements and sudden short-term instability,” Jake Krimmel, chief economist at Realtor.com, wrote in the weekly housing trends report. “Everything feels much more unstable and uncertain than it did 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 more sellers, but because homes on the market are still standing. That may be because potential sellers who expected to put their homes on the market are holding back due to concerns about the fallout from the Iran war.

“I think inventory is the biggest factor,” said Jonathan Miller, director of markets at StreetMatrix, a company that provides housing market data. “I think the idea of ​​interest rates falling significantly 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, D.C., were up 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.

Housing prices have been calm for most of last year, and they are still declining. Prices were only 0.7% higher in January than in January 2025, according to Cotality. This is lower than the 3.5% annual growth at the beginning of 2025. However, higher mortgage rates take away from improved affordability.

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

Cotality classifies 69% of major housing markets in major cities as overvalued, noting that undervalued markets such as Los Angeles, New York City, San Francisco and Honolulu could see a price rebound in 2027.

“Ultimately, locations with consistent job growth will continue to be the primary driver of price increases, but they also experience larger inventory deficits that put pressure on home prices,” Selma Heap, 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 the excess supply of homes. Inventories stood at 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 cut prices in March, according to the National Association of Home Builders.

“Affordability for buyers and builders remains a major concern,” Bill Owens, chairman of the NAHB Board of Directors, said in a statement. “Many buyers remain on the sidelines waiting for interest rates to fall and due to economic uncertainty. Builders face rising land, labor and construction costs, and nearly two-thirds continue to offer sales incentives in an attempt to boost the market.”

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

“I think this year is going to be an uninspiring year for the housing market,” Miller said. “It started with high expectations. I think the war, whatever its outcome, has dampened enthusiasm and kept uncertainty very high.”