Rising Rates & War in Iran Cool Spring Housing Market: What Buyers & Sellers Need to Know

Spring, traditionally the peak season for home sales, is presenting a complex landscape for buyers and sellers alike. While market dynamics are increasingly favoring buyers, economic uncertainties, particularly the war with Iran and its impact on inflation, are creating significant challenges. The most crucial factor influencing the market remains mortgage rates.

Mortgage rates have climbed sharply, reaching 6.53% on Friday, March 20, 2026 – the highest level since September 2025, according to Mortgage News Daily. This rise, reversing earlier expectations of lower rates tied to Federal Reserve policy, is directly linked to escalating oil costs and renewed inflationary pressures stemming from the conflict in Iran. The average 30-year fixed mortgage rate started the year lower, even dipping below 6% in February, but has quickly reversed course.

Higher rates are inevitably impacting affordability, a key concern for potential homebuyers. Despite this, other factors are creating opportunities for those still in the market.

Homes are staying on the market longer, and sellers are increasingly willing to reduce prices. Active inventory for homes was up 5.6% year-over-year as of March 14, 2026, according to Realtor.com. But, the increase in supply isn’t solely due to more sellers listing properties; rather, homes are sitting on the market for extended periods. Some potential sellers are likely holding back due to concerns surrounding the implications of the war in Iran.

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

The housing market’s performance is varying significantly by location. In February, cities like Las Vegas, Seattle, Cincinnati, and Washington, D.C., experienced active listings up over 20% year-over-year. Conversely, San Francisco, Chicago, Miami, and Orlando, Florida, saw listings lower than the previous year.

Nationally, home prices have cooled, increasing only 0.7% in January compared to January 2025, down from 3.5% annual growth at the beginning of 2025. The Northeast and Midwest are currently witnessing the strongest price appreciation, driven by tighter supply in those regions.

Cotality currently ranks 69% of top metropolitan housing markets as overvalued, suggesting potential for price rebounds in undervalued markets like Los Angeles, New York City, San Francisco, and Honolulu in 2027.

Buyers may find better deals in the new construction market this spring, as builders are struggling with an oversupply of homes. Inventories reached a 9.7-month supply in January, coinciding with the lowest sales levels since 2022. A growing number of builders are offering price cuts in March, according to the National Association of Home Builders.

“Affordability for buyers and builders remains a top concern,” stated Bill Owens, chairman of the NAHB. “Many buyers remain on the fence waiting for lower interest rates and due to economic uncertainty.”

Construction of single-family homes also declined in January, with builders facing ongoing challenges related to land, labor, and material costs.

Experts anticipate a challenging year for the housing market. “I think What we have is not going to be an inspiring year for the housing market,” Miller commented. “It started out with high expectations. I think the war, whatever the outcome, has really dampened enthusiasm and kept uncertainty really high.”

What is driving up mortgage rates?

The war with Iran is a primary driver, leading to higher oil costs and increased inflation, prompting the Federal Reserve to reconsider its lending rate policies.

Are home prices still rising?

Home prices nationally are slightly up (0.7% as of January 2026), but the rate of growth has slowed significantly compared to the beginning of 2025.

Is it a good time to buy a home?

It depends on your individual circumstances and location. The market is shifting in favor of buyers, but higher mortgage rates are impacting affordability.