The housing market is heating up once again, and not just because of seasonal trends. As mortgage rates climb, more buyers are pushing into the market, and that surge in activity is helping drive home prices even higher. Rising borrowing costs and increasing property prices, a double pressure, is starting to reshape how and when buyers make their move, and what it might mean for future affordability.

Sales of existing homes rose 4.2 percent between January and February of this year, reaching an annualized pace of 4.26 million units, according to the National Association of Realtors. At the same time, the median existing home price jumped to $398,400, a 3.8 percent increase from a year earlier. It’s a clear signal that despite elevated mortgage rates, housing demand is still alive and well. According to NAR Chief Economist Lawrence Yun, it is not a sudden drop in mortgage rates luring people back into the market, but rather a modest increase in inventory and a strong desire among buyers to act before prices rise even further.

So what is behind this upward price movement? A strong labor market, stubbornly low inventory and steady demand continue to be the driving forces. Even with mortgage rates hovering between 6 and 7 percent, buyers are motivated by concerns that waiting will only mean higher prices and fewer options. Job numbers from the U.S. Bureau of Labor Statistics support this behavior, showing a gain of 151,000 jobs in February and an unemployment rate of 4.1 percent which is a level generally seen as economically healthy.

But the most telling data point may be inventory. At the end of February, there were just 1.24 million unsold homes on the market, representing a 3.5-month supply at the current sales pace. A six-month supply is typically considered a healthy balance between buyers and sellers. With such limited inventory, competition is fierce, and prices are pushed upward as buyers race to secure a home before conditions become even more challenging.

This competitive pressure is also shaping who’s buying. First-time homebuyers made up 31 percent of transactions in February, a noticeable increase from 26 percent the previous year. Meanwhile, investor activity has cooled, falling to just 16 percent of purchases from 21 percent a year ago. With fewer investor bids in the mix, more homes are going to those intending to live in them, but many of those buyers are still bringing strong cash offers that help keep prices elevated even as mortgage rates climb.

For those who are not paying with cash, navigating this environment requires careful strategy. Buyers may need to adjust expectations, whether that means looking at smaller homes, different neighborhoods or older properties that might need work. Others may consider flexible financing options, such as adjustable-rate or interest-only mortgages. While these can lower initial payments, they also come with risks that must be understood fully before committing.

Some buyers are taking the approach of buying now and refinancing later, hoping for a dip in rates. Refinancing can lead to lower payments or better loan terms, but it is not without costs. Fees, new closing costs and possible delays all need to be weighed carefully. For those with patience, timing can be another tool, waiting until the fall or winter, when buyer activity tends to cool, might open the door to better deals and more negotiating power.

Even as buyers wrestle with these decisions, current homeowners are seeing benefits. Rising prices mean growing equity, and that can open up new opportunities. Yun notes that for every one percent increase in home values, American homeowners collectively gain roughly $350 billion in equity. That kind of wealth increase can help fund a future purchase, home renovation, or other investments.

In a housing market shaped by limited inventory, strong employment and rising costs, the dynamics are shifting. Buyers face tough choices, but with thoughtful planning and an eye on both short-term needs and long-term goals, it is still possible to find the right home, and make a smart move.

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