Spring chill: soaring rates and war jitters put housing market on ice

Rising mortgage rates, propelled by ongoing geopolitical tensions from the U.S.-Israel war with Iran and broader economic uncertainty, have reversed earlier affordability gains and significantly dampened housing demand. According to First American analysis, the average 30-year fixed mortgage rate surged from 6.05% in February to 6.51% by late May 2026, eroding buyer purchasing power by roughly $11,000 for every 25 basis point increase. This volatility, highlighted by Andy Walden of ICE who noted a 40 basis point rise pulling 4% of buying power from the market, has reshaped conditions from the early-year optimism to a more cautious environment for borrowers.

Despite mortgage rates climbing to nine-month highs near 6.5%, housing demand has shown surprising resilience, with purchase application data demonstrating year-over-year growth in 2026. Experts like Logan Mohtashami acknowledge this persistence, attributing it partly to dual-income households where wages outpace home price increases, thus offsetting some affordability challenges. However, Mohtashami also notes that the ongoing Iran conflict has curtailed the expected sales growth that might have materialized if rates had remained below 6.25%, underscoring how geopolitical conflict continues to restrain market expansion.

The persistent geopolitical conflict and rising mortgage rates have injected caution into both buyers and sellers, as reflected in Real's agent survey where nearly 79% of agents reported that rate movements, market volatility, and geopolitical headlines are influencing client decisions. This caution manifests in increased buyer requests for seller concessions (39%) and delays or reductions in home search budgets (36%), contributing to a spring housing market that underperformed expectations despite some signs of stabilization. The market’s fragility is further underscored by data showing housing activity typically softens when mortgage rates exceed 6.64%, a threshold that rising rates are approaching amid ongoing tensions.

While the geopolitical tensions between Israel and Iran continue to push mortgage rates higher and fuel economic uncertainty, recent analyses suggest the housing market may have found a floor, with fears of a crash being overstated. The conflict’s impact extends beyond rates, influencing oil prices and broader economic sentiment, yet housing demand remains solid for now. This nuanced dynamic highlights a market caught between the headwinds of geopolitical risk and the underlying resilience of buyer activity, setting the stage for a cautiously optimistic outlook amid ongoing volatility.

Rising mortgage rates, which hovered around 6.53% in late May—up 55 basis points from February lows—have significantly tightened affordability, prompting buyers to adopt a more cautious stance. This shift is evident in buyers delaying searches, reducing budgets, and increasingly requesting seller concessions, with 39% of agents reporting these trends, as noted in Real's May survey. Consequently, buyers are gaining leverage in the market, supported by rising inventory and falling prices that have pushed months’ supply of new homes to 9.4, firmly establishing a buyer-friendly environment.

Sellers are adapting to this new reality by pricing homes more realistically from the outset, reducing the frequency of formal price cuts compared to last year. Realtor.com’s senior economist Jake Krimmel highlights that the share of listings with price reductions declined by 1.6 percentage points year over year to 17.5%, signaling a strategic shift away from inflated initial pricing. However, this caution also manifests in sellers pulling listings—5.8% in April, the highest since March 2020—as many hesitate to accept lower offers amid a widening gap between seller expectations and buyer behavior, according to Redfin and Realtor.com analyses.

Despite some sellers withdrawing homes, others are cautiously re-entering the market, with relistings accounting for 2.5% of active listings in April—the highest since mid-2020—particularly in dynamic markets like San Francisco, where median sale prices surged 14.4% year over year. This ebb and flow reflect sellers’ strategic recalibration amid fluctuating buyer interest and regional disparities. Meanwhile, overall new listings remain subdued, down 4.1% year over year in May despite the seasonality of spring, underscoring persistent seller hesitancy tied to being locked into low pandemic-era mortgage rates.

Together, these dynamics have fostered a more balanced, buyer-favorable market where cautious buyer behavior meets sellers’ tempered expectations. Danielle Hale, chief economist at Realtor.com, observes that after six consecutive months of sellers adjusting prices and buyers responding positively, the market is finding a new equilibrium despite ongoing geopolitical and economic headwinds. This is reflected in longer times to pending status—18 days median in May—and a decline in homes selling above list price, signaling a cooling but stabilizing spring market that remains 18% below pre-pandemic levels in both buyer and seller activity.

Real estate agent optimism has notably declined in the spring of 2026 despite some signs of market stabilization, with Intel’s Client Pipeline Tracker plunging to -0.5 in May—the lowest since November—and only 27% of agents anticipating healthier buyer pipelines a year ahead, down sharply from 51% in January. This cautious sentiment is echoed in Real’s Agent Optimism Index, which fell from 70.3 in February to 61.3 in May, underscoring a broad retreat in confidence amid persistent economic headwinds.

The spring housing market is underperforming relative to agent expectations, as 38% of surveyed agents report the season tracking weaker than anticipated, with 13% describing conditions as 'much weaker.' This underperformance reflects a brokerage industry caught in a malaise—neither worsening nor improving significantly—highlighting how broader economic uncertainties are tempering growth prospects despite some stabilization in buyer activity.

Rising mortgage rates, which climbed from 5.99% before the Iran conflict to 6.53% by May 2026, alongside a 3.8% year-over-year increase in consumer prices, are straining affordability and dampening buyer confidence. Consequently, agents report more selective buyer behavior, with 44% citing affordability as the top challenge, 39% noting increased buyer requests for seller concessions, and 36% observing buyers delaying searches or reducing budgets. Sellers are also responding cautiously, with 39% more willing to negotiate and 27% hesitant to list, illustrating how geopolitical and economic pressures are reshaping market dynamics.

By mid-2025, housing inventory growth turned negative year-over-year, marking a notable shift in market dynamics after a prolonged period of steady increases. Despite this decline, inventory levels remain elevated compared to the lows seen between 2020 and 2023, suggesting a market that is stabilizing rather than collapsing. Seasonal factors such as the Memorial Day holiday temporarily suppressed listings, but analysts caution that these fluctuations should not be mistaken for fundamental weakness, as inventory is plateauing at multiyear highs rather than dropping to unhealthy lows.

Rising mortgage rates, influenced heavily by geopolitical tensions like the Iran conflict, have played a critical role in tempering inventory growth and buyer demand. Rates climbed from 5.99% to a peak of 6.75%, ending recently at 6.56%, which has constrained both supply and demand dynamics. As one analysis notes, 'If the Iran conflict hadn’t happened and rates hadn’t broken higher, demand would have been better and inventory a tad lower,' underscoring how macroeconomic factors continue to complicate market forecasts and contribute to a cautious environment for buyers and sellers alike.

Regional inventory trends reveal uneven market conditions, with the Northeast and Midwest experiencing a resurgence in new listings—up 8.6% and 4.7% year-over-year respectively—helping to ease long-standing shortages. Conversely, the South and West face stalled inventory growth and rising days on market, reflecting the harsher impact of economic and geopolitical headwinds in those areas. This patchwork of regional performance contributes to an overall housing market that, while showing signs of stabilization and increased buyer engagement, remains underwhelming compared to previous spring seasons.

Despite some month-over-month sales upticks, the spring 2026 housing market is underperforming relative to last year’s benchmarks, with new listings down 4.1% year-over-year and sales trailing by 2.9%. Sellers are adapting by pricing homes more realistically upfront, as evidenced by a 1.6 percentage point decline in price reductions among active listings, signaling a more balanced but cautious market. This tempered activity, combined with seasonal listing variability and mortgage rate pressures, paints a picture of a housing market that is stabilizing but far from robust recovery.