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. interest rates 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 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.”

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,” Miller said.