The U.S. housing market, which typically picks up in the spring as buyers return in earnest, is facing significant turbulence this year. According to real estate agents surveyed in the CNBC Housing Market report, the ongoing war with Iran and its ripple effects on the U.S. economy, employment, and inflation have unsettled both buyers and sellers. These uncertainties are combining with higher-than-expected mortgage rates to sap momentum from a season that traditionally sees the highest activity in the housing sector.

Mortgage Rates Climbing Back Up

Mortgage rates, which had offered some relief during the winter months, jumped significantly following the onset of the Iran war. The average 30-year fixed rate spiked from 5.99% the day prior to the conflict’s emergence to around 6.6% in just a matter of weeks. Buyers, already stretched thin by affordability concerns, are now contending with these higher borrowing costs alongside fears about job security and energy prices. "They’re fearful of the war. They’re fearful of gas prices, their job security," one agent remarked, highlighting the growing unease among potential homeowners.

These fears are not unwarranted. As inflationary concerns mount and employment prospects become murkier, buyers are pulling back or delaying decisions altogether. The CNBC report found that only 19% of respondents cited affordability as a reason for leaving the market at the end of last year, but that figure has now climbed to 19%, signaling a growing deterrent.

Buyer Hesitancy at an All-Time High

One of the most striking shifts in buyer sentiment is the decreased concern about home prices relative to broader economic factors. Only 9% of agents reported that their buyers were primarily concerned about rising home prices this quarter, a sharp decline from 18% in the prior quarter. This shift suggests that economic instability and rising mortgage costs have overtaken price appreciation as the top factors influencing buyer behavior.

As a result, demand is dropping, leaving homes to languish on the market for longer periods. The report revealed that 31% of agents noted their listings remaining unsold for over six weeks, compared with 26% in the previous quarter. Some buyers who were close to making offers are now reversing course out of caution. "You’re just seeing buyers that were on the fence and deciding to buy are now on the fence and going the other direction, saying, ‘I’m not going to buy,’" noted one agent.

Sellers Face Their Own Challenges

Sellers, too, are feeling the pressure. As homes sit unsold, many are reevaluating their asking prices or postponing their plans to list. Nearly half of the agents surveyed noted that sellers' top concern last year was listing prices, but this year, wait times and the difficulty of securing a timely sale are taking precedence. Pricing disputes between agents and sellers are also becoming more common, with some sellers refusing to adjust their expectations to meet the current market conditions. One agent recounted a seller’s unwillingness to accept offers below their full asking price, ultimately resulting in the property being pulled from the market.

Interestingly, fewer agents reported price cuts during the first quarter compared to the previous quarter, but this could be misleading as it may correlate with short-lived dips in mortgage rates earlier this year. Those temporary reductions in borrowing costs gave buyers slightly more purchasing power, providing a momentary boost to activity.

Contract Cancellations and Market Sentiment

The combination of higher mortgage rates, inflation, and job market concerns has also led to more contract cancellations. More than half of the agents surveyed reported experiencing at least one deal falling through in this quarter alone. The data paints a picture of a market riddled with indecision and uncertainty, as participants—both buyers and sellers—wait for better clarity or conditions.

Looking ahead, the sense of optimism among agents has significantly diminished. Just over half of respondents expect the market to improve in the near future, but that’s a notable drop from the end of last year when no active military conflict clouded the economic horizon. Many more agents now anticipate the market to stay stagnant, a sobering reality as the transition from the slower winter season leaves expectations for spring largely unmet.

The Broader Economic Context

The Iran war has added a new layer of complexity to an already volatile economic situation. Rising fuel prices, fears of automation-related job losses, and the looming specter of inflation are weighing heavily on consumer sentiment. When combined with rising borrowing costs, these factors have created a challenging environment for the U.S. housing market. Buyers are hesitant to commit, and sellers are hesitant to list, resulting in a market that feels stuck in limbo.

This reassessment of housing activity also reflects a longer-term recalibration of the market after the extraordinary growth and heightened demand seen during the pandemic. While some of these adjustments are part of a natural cooling process, external shocks like a geopolitical conflict and its economic aftershocks risk prolonging or deepening the malaise.

What’s Next for the Housing Market?

The next few months will be critical in determining the trajectory of the housing market. If mortgage rates continue to hover at elevated levels or climb higher, they may further undermine buyer affordability. Likewise, if the broader economic picture does not stabilize—whether through resolution of the Iran war or improvement in other economic indicators—consumer confidence could remain suppressed well into the summer and fall.

Sellers, conversely, may be compelled to adjust their expectations or wait out these challenging conditions entirely. Agents are already reporting cases where sellers who were once eager about a spring listing are pushing those plans to the fall. For now, the market appears to be grappling with too many headwinds to gain significant momentum.

What remains clear is that both buyers and sellers are operating from a place of caution in today’s uncertain environment. Without a resolution to the economic and geopolitical challenges currently at play, the housing market’s recovery may proceed more slowly than anyone had anticipated.