Spring housing market continues, but mortgage rates are soaring

Spring is traditionally the busiest time for home sales, and while market dynamics have shifted significantly in favor of buyers this year, broader economic impacts are creating significant challenges.

The most important factor in any season is mortgage interest rates. Interest rates were expected to fall this year as the Federal Reserve lowered lending rates to combat inflation, but the war with Iran has changed that. Oil prices are rising, leading to higher inflation and forcing the Fed to reconsider.

Interest rates in the United States are currently rising, and mortgage rates are following suit.

Average interest rates on popular 30-year fixed mortgages started the year low, at one point dipping below 6% at the end of February, but rose sharply this week to 6.53% on the first Friday of spring, according to Mortgage News Daily. It is now just 18 basis points lower than it was a year ago.

Rising interest rates will squeeze affordability, but other factors have flipped the market in favor of buyers. Homes are sitting 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.

“The housing market is in a precarious position, caught between long-term improvement and sudden short-term instability as we enter a ‘best time to sell,'” Jake Krimmel, senior economist at Realtor.com, wrote in his weekly housing trends report. “Everything seems much more volatile and uncertain than it did just a month ago.”

According to Realtor.com, active inventory rose 5.6% year-over-year for the week ending March 14, but the number of new listings decreased 1.4%.

This means that the number of homes for sale is increasing not because there are so many sellers, but because there are unsold homes on the market. That may be because potential sellers who were hoping to put their homes on the market are holding back because they are concerned about the impact of the Iran war.

“I think inventory is the bigger determining factor,” said Jonathan Miller, market director at housing market data provider StreetMatrix. “I think the idea that interest rates will drop significantly this year is generally unthinkable.”

Given the differences in inventory between markets, this spring is likely to be a big hit in many cities.

For example, active listings in Las Vegas, Seattle, Cincinnati and Washington, D.C. all increased by more than 20% in February compared to a year ago, according to Realtor.com. Meanwhile, the number of listings in San Francisco, Chicago, Miami, and Orlando, Fla., was down from a year ago.

Home prices have been depressed for much of the past year, and that trend continues. According to Kotality, prices in January were only 0.7% higher than in January 2025. This is down from the 3.5% annual growth rate at the beginning of 2025. But rising mortgage rates are undermining affordability gains.

Kotality said the Northeast and Midwest are seeing the most price increases, led by New Jersey, Connecticut, Illinois, Wisconsin and Nebraska, due to tight supply in those regions.

Kotality ranks 69% of major metropolitan housing markets as overvalued, and notes that undervalued markets such as Los Angeles, New York City, San Francisco and Honolulu could see price recoveries in 2027.

“Ultimately, regions with consistent job growth will continue to be the main drivers of price increases, but inventory shortages are also significant, putting pressure on home prices,” Kotality chief economist Thelma Hepp said in a recent note.

When it comes to new construction, buyers are likely to see better deals this spring as builders struggle to unload an oversupply of homes. Inventories reached 9.7 months’ supply in January as sales fell to the lowest level since 2022, according to the U.S. Census. According to the National Association of Home Builders, the percentage of builders that reduced prices increased in March.

“Affordability for buyers and builders remains a top concern,” NAHB Chairman Bill Owens said in the release. “Many buyers remain cautious due to low interest rates and economic uncertainty. Builders face rising land, labor and construction costs, and nearly two-thirds continue to offer sales incentives to stabilize the market.”

Construction of single-family homes also fell in January. While some blame harsh winter weather for the downturn in the new home market, builders are constantly battling affordability for both their customers and their own profits. The costs of land, labor, and materials have not fallen.

“I don’t think this is going to be an exciting year for the housing market. The housing market started out with high expectations. Whatever the outcome, I think the war has really dampened enthusiasm and created a lot of uncertainty,” Miller said.