A real estate agent tours neighbors during an open house at a home in Palm Beach Gardens, Florida, U.S., Sunday, Jan. 11, 2026.
Zak Bennett | Bloomberg | Getty Images
Spring is traditionally the busiest season for home sales, and while market dynamics have shifted sharply in buyers’ favor this year, broader forces in the economy pose significant challenges.
The most important factor at any time of year is mortgage interest rates. They were expected to be lower this year as the Federal Reserve cut its lending rate to combat inflation, but the war with Iran has upended the situation. Oil prices are rising rapidly, leading to rising inflation and causing the Fed to rethink its approach.
Now US interest rates are rising, and mortgage rates are following this trend.
According to Mortgage News Daily, the average interest rate on the popular 30-year fixed-rate mortgage has been lower this year, even briefly falling below 6% in late February, but rose sharply this week to 6.53% on Friday, the first day of spring. It is now only 18 basis points below the value a year ago.
Higher prices will affect affordability, but other factors have shifted the market in buyers’ favor. 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 the ‘best time to sell,’ it finds itself in a precarious position, caught between long-term improvement and sudden short-term instability,” wrote Jake Krimmel, senior economist at Realtor.com, in a report on Weekly Housing Trends. “Everything seems much more unsettled and uncertain than it did a month ago.”
According to Realtor.com, active inventory rose 5.6% year-over-year for the week ending March 14, but new listings fell 1.4%.
This means that the number of homes for sale is increasing not because there are so many sellers, but because homes are sitting on the market. That may be because potential sellers who had expected to put their homes on the market are wary of the fallout from the Iran war.
“I think inventory is the more critical factor,” said Jonathan Miller, market director at StreetMatrix, a housing market data provider. “The idea that interest rates will fall noticeably this year is, in my opinion, fundamentally off the table.”
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Location, location
Given the disparity in inventory across markets, this spring is likely to be a doom and gloom for many cities.
For example, according to Realtor.com, active listings in Las Vegas, Seattle, Cincinnati and Washington, DC, increased over 20% in February compared to the previous year. Meanwhile, listings in San Francisco, Chicago, Miami and Orlando, Florida, were lower than a year ago.
Real estate prices cooled for much of the past year and continue to do so. According to Cotality, prices in January were just 0.7% higher than in January 2025. That’s down from annual growth of 3.5% at the start of 2025. However, higher mortgage rates are eroding improved affordability.
According to Cotality, the Northeast and Midwest are seeing the largest price increases, led by New Jersey, Connecticut, Illinois, Wisconsin and Nebraska, due to tighter supply in those regions.
Cotality rates 69% of major metropolitan real estate markets as overvalued and suggests that undervalued markets such as Los Angeles, New York City, San Francisco and Honolulu could see prices rise in 2027.
“Ultimately, locations with steady job growth will remain the main drivers of price increases, but they also experience larger inventory deficits, increasing pressure on property prices,” Cotality chief economist Selma Hepp wrote in a recent report.
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 of inventory in January as sales fell to their lowest level since 2022, according to the U.S. Census. According to the National Association of Home Builders, a growing share of home builders cut prices in March.
“Affordability for buyers and builders remains a key concern,” NAHB Chairman Bill Owens said in a news release. “Many buyers remain cautious in anticipation of lower interest rates due to economic uncertainty. Builders are facing increased land, labor and construction costs, and nearly two-thirds continue to offer sales incentives to bolster the market.”
The construction of single-family homes also fell in January. While some blame the harsh winter weather for the weakness in the new home market, builders are constantly struggling to keep prices affordable for both their customers and their own profits. The cost of land, labor and materials has 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.
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