Buyers Were Ready—Then Uncertainty Priced Them Out

The housing market’s long-running affordability problem may be giving way to something else: uncertainty.

The spring selling season had been off to a strong start. In February, mortgage rates dipped below 6% for the first time since 2022 and new listings were climbing despite winter weather.

But then, the conflict in Iran rattled markets and pushed borrowing costs back up. In response, mortgage application volumes dipped and have now fallen for four straight weeks.

The recent spike in mortgage rates has added about $100 to monthly mortgage payments for a median-priced home, assuming a 10% down payment, according to Realtor.com® senior economic research analyst Hannah Jones.

But lenders say the issue for many of these would-be homebuyers isn’t being priced out in the traditional sense.

“It’s more uncertainty" that they’re responding to, says Kevin Leibowitz, a mortgage broker at Grayton Mortgage. “Nobody feels good about things when bombs are going off.”

Why some homebuyers are backing out even after getting pre-approved

Pending home sales data for March won’t be released until later this month, so it’s not yet entirely clear how much the conflict has chilled the market. For now, though, mortgage lenders say the difference is palpable.

“There has definitely been a pause with some pre-approved buyers and a slower uptick in new applications this month,” Lynette Arrasmith, a mortgage adviser in Omaha, says. “The war has certainly created volatility in the interest rate environment, which leads to fear of the unknown and continued unrest for buyers.” 

The Mortgage Bankers Association echoed that broader concern in its March forecast, noting that higher oil prices, market swings, and uncertainty are likely to weigh on consumer sentiment and spending.

That unease is now also colliding with fresh inflation pressure. Friday's inflation report shows that prices rose by 3.3% in the 12 months through March—the largest annual increase in nearly two years, driven by surges in energy prices from the conflict.

Those added costs can be salt in the wound for buyers, even if they may still technically be able to afford the higher mortgage rate. While it can be doable to justify higher costs in one budget category, it’s harder to do so across gas prices, food, housing, and more.

What is pricing buyers out right now

That's not to suggest that the rate hike hasn't priced buyers out of the market. There was a reason, after all, that so many industry professionals were encouraged to see mortgage rates come down right before peak season.

For buyers already on the cusp of affordability, even a small difference in the monthly mortgage payment can matter, and crossing the 6% threshold offered a meaningful improvement for many of these house hunters on the edges.

Leibowitz says he’s seen some borrowers who are a “green light at 6 and a red light at 6.5."

But the issue is not only the payment—it's also what that higher payment does to the rest of a buyer’s financial profile.

If a monthly payment rises too much, it can push a borrower’s debt-to-income ratio out of range. It’s generally recommended to have a DTI of 36% or lower when buying a home. Even an added $100 per month can skew that DTI over lenders' preferred thresholds, especially for those with lower or moderate monthly incomes.

Arrasmith puts it plainly: “During our borrower consults, we talk about budget, comfort level with the total monthly payment, and available cash needed for closing. Any combination of factors could knock a borrower out of the ideal time to buy.”

Others emphasized that the tipping point can vary from buyer to buyer. 

“Ultimately, it comes down to the borrower's personal budget and how much of their income they have allocated toward housing expenses, including funds to close,” Jeremy Thuveson, a Las Vegas–based home lender, says.

While mortgage rates have dominated the headlines, what's hitting buyers hardest is the cumulative effect of a higher monthly payment, tighter qualification math, and inflationary pressure leaving them with very little room for error.

Wait-and-see returns

For now, lenders aren't describing a market where buyers are disappearing altogether. Instead, it looks more like a familiar dynamic, one where buyers are standing on the sidelines and waiting to find their way in.

But that hesitation is showing up differently across buyer groups.

“First-time homebuyers are feeling the need to wait and see, especially if they started the pre-approval process before the war,” Arrasmith says. “With the up-and-down changes in the interest rate environment, this type of buyer falls back to caution.”

Move-up buyers, meanwhile, may have more income or home equity, but they have their own reason to pause.

“That’s not to say the ‘move-up’ buyer isn't feeling a sense of pause, as well,” Arrasmith says. “Those ‘rock star’ rates of a few years ago are hard to give up—unless there is a very compelling reason to move."

And that may be the real risk facing housing right now: Just as many buyers finally got the green light they'd long been waiting for, the light suddenly flashed to red.