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

The most important factor in any season is mortgage rates. They were expected to be lower this year, as the Federal Reserve dropped its lending rate to counter inflation, but the war with Iran has turned that on its head. The cost of oil is shooting higher, leading to rising inflation and causing the Fed to reconsider.

Now U.S. bond yields are rising, with mortgage rates following suit.

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

Higher rates will weigh on 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 rising, albeit not as quickly as it should be.

“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,” Jake Krimmel, senior economist at Realtor.com, wrote in a Weekly Housing Trends report. “Everything seems much more unsettled and uncertain than it did just a month ago.”

For the week ending on March 14, active inventory was up 5.6% year-over-year, according to Realtor.com, but new listings were down 1.4%.

This means the number of homes for sale is climbing not because there are so many more sellers, but because the homes on the market are sitting. That may be because potential sellers who expected to put their homes on the market are holding back due to concerns about the implications of the Iran war.

“I think inventory is the bigger decider,” said Jonathan Miller, director of markets for StreetMatrix, a housing market data provider. “The idea that rates are going to noticeably come down this year, I think, is generally off the table.”

Given the disparity in inventory across different markets, this spring is likely to be a tale of many cities.

For example, in February, active listings in Las Vegas, Seattle, Cincinnati and Washington, D.C., were all up over 20% from a year ago, according to Realtor.com. Listings in San Francisco, Chicago, Miami and Orlando, Florida, meanwhile, were lower than a year ago.

Home prices had been cooling off for much of the past year, and they continue to do so. Prices were just 0.7% higher in January than they were in January 2025, according to Cotality. That’s down from the 3.5% annual growth at the beginning of 2025. Higher mortgage rates, however, are taking away from that improved affordability.

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

Cotality ranks 69% of top metropolitan housing markets as overvalued, noting undervalued markets like Los Angeles, New York City, San Francisco and Honolulu could see a rebound in prices in 2027.

“Ultimately, 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,” Selma Hepp, Cotality’s chief economist, wrote in a recent report.

As for new construction, buyers are likely to see better deals this spring, as builders are struggling to unload an oversupply of homes. Inventories hit a 9.7-month supply in January, according to the U.S. Census, as the result of sales falling 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 top concern,” Bill Owens, chairman of the NAHB, said in a release. “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 in a bid to firm up the market.”

Construction of single-family homes also dropped in January. While some are blaming rough winter weather for the weakness in the new home market, builders are consistently battling affordability for both their customers and their own bottom lines. Costs for land, labor and materials have not eased.

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

Chicago Federal Reserve President Austan Goolsbee said Tuesday that interest rate cuts aren’t appropriate until there’s more evidence that inflation is on its way down.

With recent indicators showing that inflation well off its highs but still above the Fed’s 2% target, Goolsbee noted that policymakers “have been burned by assuming transitory inflation” in the past and shouldn’t make the same mistake again.

“I feel that front-loading too many rate cuts is not prudent in that circumstance,” he said in remarks before the National Association for Business Economics at its annual gathering in Washington, D.C. “People express that prices are one of their most pressing concerns. Let’s pay attention. Before we cut rates more to stimulate the economy, let’s be sure inflation is heading back to 2%.”

The most recent inflation data, for December, showed core inflation, which excludes volatile food and energy prices, running at 3%, as measured by the consumption expenditures price index, the Fed’s primary forecasting gauge. That was up 0.2 percentage point from November and came somewhat due to tariffs, which are viewed as temporary, but also from underlying pressures in the service sector and areas not directly impacted by the duties.

Specifically, Goolsbee said stubbornly high housing inflation isn’t tariff driven, emphasizing the need for the Fed to be “vigilant.”

Goolsbee noted that a 3% inflation rate “is not good enough — and it’s not what we promised when the Federal Reserve committed to the 2% target. Stalling out at 3% is not a safe place to be for a myriad of reasons we know all too well.” He has said previously that he thinks the Fed will be able to cut later in the year.

The remarks come with markets expecting the Federal Open Market Committee, of which Goolsbee is a voter this year, to stay on hold until at least June and probably July. Futures traders are placing about a 50-50 chance of a cut in June and about a 71% probability of a July cut, according to the CME Group’s FedWatch gauge. The Fed enacted three quarter-percentage-point cuts in the latter part of 2025.

Fed Governor Christopher Waller, who has been an advocate for lower rates, took a more measured approach Monday while also speaking to the NABE conference.

Though Waller said he thinks policymakers should “look through” tariff impacts, he said recent data show the labor market may be in better shape than previously indicated, mitigating the need for further cuts. If the jobs picture continues to improve, that would further lessen the case for cuts, though he said he isn’t convinced that the January nonfarm payrolls data wasn’t “more noise than signal.”

Tuesday will be an active day Fed speakers, with Governor Lisa Cook also due to present to the NABE later in the morning.