The spring housing market is on, but mortgage rates just shot higher

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

The most important factor in every season is mortgage rates. They were expected to be lower this year as the Federal Reserve lowered lending rates to combat inflation, but the war with Iran reversed that. Rising oil prices cause inflation to rise and the Fed to reconsider.

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

The popular 30-year fixed mortgage rate started lower this year, 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’s currently down just 18 basis points from a year ago.

Higher rates will put pressure on affordability, but other factors have tipped the market in buyers’ favor. Homes are sitting on the market longer, sellers are increasingly willing to lower prices, and the supply of homes for sale is growing, though not as quickly as it should.

“The housing market remains in a precarious position, caught between long-term improvements and sudden short-term instability as we approach the ‘best time to sell’ season,” Jake Krimmel, senior economist at Realtor.com, wrote in his Weekly Housing Trends report. “Things seem much more unstable and uncertain than they did a month ago.”

In the week ending March 14, active inventory increased 5.6% year-on-year. realtor.comhowever, new listings were down 1.4%.

This means that the reason the number of homes for sale is increasing is not because there are too many sellers, but because homes have stalled on the market. This may be because potential sellers waiting to put their homes on the market are holding back due to concerns about the effects of the Iran war.

“I think inventory is the bigger decider,” said Jonathan Miller, director of markets at housing market data provider StreetMatrix. “I think the idea that interest rates are going to drop significantly this year is generally off the table.”

Given the disparity in stock across different markets, this spring is likely to be the story of many cities.

For example, active listings in Las Vegas, Seattle, Cincinnati and Washington, D.C., in February 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.

Home prices have been in decline for much of the past year and continue to do so. Prices were only 0.7% higher in January than in January 2025, according to Cotality. This is below the 3.5% annual growth at the beginning of 2025. But higher mortgage rates offset this increased affordability.

According to Cotality, the Northeast and Midwest are seeing the strongest price growth, led by New Jersey, Connecticut, Illinois, Wisconsin and Nebraska, due to tight supply in those regions.

Cotality lists 69% of the largest metro housing markets as overvalued, noting that undervalued markets like Los Angeles, New York City, San Francisco and Honolulu could see a rebound in prices in 2027.

“Ultimately, places with steady job growth will continue to be the main engine of price appreciation, but there are also larger inventory shortfalls weighing on home prices,” Selma Hepp, chief economist at Cotality, said in a recent report. he wrote.

when it comes Due to new construction, buyers are likely to see better deals this spring as builders try to unload excess homes. Inventories reached a 9.7-month supply level in January as sales fell to the lowest level since 2022, according to the U.S. Census. A growing number of builders cut prices in March. According to the National Association of Home Builders.

“Affordability to buyers and builders remains a top concern,” NAHB president Bill Owens said in a statement. “Many buyers are holding out 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 in an effort to strengthen the market.”

Construction of single-family homes also fell in January. While some blame harsh winter weather for the weakness in the new home market, builders continually struggle with affordability for both their customers and their own bottom lines. Land, labor and material costs have not decreased.

“I don’t think this is going to be an inspiring year for the housing market. It started with high expectations. I think whatever the outcome is, the war has really dampened excitement and kept uncertainty really high,” StreetMatrix’s Miller said.