On a quiet Sunday in January, a realctor welcomed neighbors into a Palm Beach Gardens home, a scene that typically signals the start of the busiest season for U.S. housing. But this spring, the market’s rhythm is off-key. While conditions have shifted in buyers’ favor in many ways, a sudden geopolitical shock has reintroduced a stubborn villain: higher borrowing costs.
The Rate Reversal: How Geopolitics Upended Spring
Heading into 2026, the consensus was clear: mortgage rates would fall. The Federal Reserve had begun cutting its benchmark rate to combat inflation, promising relief for homebuyers. That narrative collapsed in early March with the outbreak of war between the U.S. and Iran. The conflict sent oil prices soaring, reigniting inflationary pressures and forcing the Fed to pause—and potentially reverse—its easing cycle.
The impact was immediate. After briefly dipping below 6% in late February, the average rate on a 30-year fixed mortgage surged to 6.53% by Friday, March 20—the first day of spring, according to Mortgage News Daily. That rate is now a mere 18 basis points lower than a year ago, erasing nearly all of the anticipated relief. “The idea that rates are going to noticeably come down this year is generally off the table,” said Jonathan Miller, director of markets for StreetMatrix, a housing data provider.
A Tale of Two Inventory Stories
Higher rates threaten affordability, but other forces have created a more buyer-friendly dynamic. Homes are lingering longer on the market, sellers are cutting prices more frequently, and the overall supply of homes for sale is inching up. The critical question is why inventory is rising.
For the week ending March 14, active listings were up 5.6% year-over-year, per Realtor.com. Yet new listings—the flow of fresh properties hitting the market—were down 1.4%. This divergence suggests the inventory growth isn’t driven by eager sellers; it’s because existing listings are selling more slowly, likely because would-be sellers are hesitant to move and take on a new, higher-rate mortgage, especially amid the new economic uncertainty from the Iran war.
“Inventory is the bigger decider,” Miller noted. The market is caught in a precarious balance. “As the housing market approaches the ‘best time to sell’ season, it sits in a precarious position, caught between long-term improvements and sudden short-term instability,” wrote Jake Krimmel, senior economist at Realtor.com. “Everything seems much more unsettled and uncertain than it did just a month ago.”
Location, Location: A Patchwork Market
The inventory story is not national—it’s intensely local. In February, active listings in markets like Las Vegas, Seattle, Cincinnati, and Washington, D.C., surged over 20% from a year ago, Realtor.com data shows. Conversely, supply shrunk in San Francisco, Chicago, Miami, and Orlando, Florida. This patchwork means the “buyers’ market” label applies selectively this spring.
Price trends reflect this fragmentation. After a year of cooling, national home price growth has decelerated dramatically. In January, prices were just 0.7% higher than a year earlier, according to analytics firm Cotality, down from 3.5% annual growth at the start of 2025. However, that modest gain is being undermined by the renewed rate spike.
The strongest price appreciation is concentrated in the Northeast and Midwest—New Jersey, Connecticut, Illinois, Wisconsin, Nebraska—driven by persistently tight supply. Cotality’s analysis finds 69% of major metropolitan markets are currently overvalued. Intriguingly, traditionally expensive markets like Los Angeles, New York City, San Francisco, and Honolulu are now classified as undervalued, a potential signal of future price rebounds if conditions stabilize. “Locations with consistent job growth will remain the primary engines for price appreciation, but they also have larger inventory deficits which are driving pressure on home prices,” explained Selma Hepp, chief economist at Cotality.
The New Home Dilemma: Builders Offer Incentives
Buyers eyeing new construction may find unexpected opportunities this spring. Builders are grappling with an oversupply of completed homes. The U.S. Census reported a 9.7-month supply of new homes in January—a high level—as sales fell to their lowest point since 2022. Consequently, a growing share of builders are cutting prices or offering other incentives like mortgage rate buydowns, according to the National Association of Home Builders (NAHB).
“Affordability for buyers and builders remains a top concern,” said Bill Owens, chairman of the NAHB. “Many buyers remain on the fence waiting for lower interest rates and due to economic uncertainty. Builders are facing elevated land, labor and construction costs and nearly two-thirds continue to offer sales incentives.”
Single-family home construction also dipped in January. While winter weather played a role, builders face a structural squeeze: high costs for land, labor, and materials have not eased, squeezing their profit margins even as they compete for a smaller pool of rate-sensitive buyers.
Ultimately, the spring housing season has been derailed by an unexpected externality. The market’s fundamental shift toward buyers—more supply, slower sales, price moderation—remains intact. But the renewed rise in mortgage rates, triggered by geopolitical events, is a powerful headwind that could stall momentum and prolong this period of uncertainty well beyond the season.
Sources: Mortgage News Daily, Realtor.com, U.S. Census Bureau, National Association of Home Builders (NAHB), Cotality.
