Are Higher Interest Rates Holding Home Prices at Bay — or Pushing Them Higher?

Lately, I’ve been thinking about how higher interest rates affect the housing market. It’s true that today’s rates are significantly higher than what we saw in 2020. Back then, the pandemic sent rates plummeting to historic lows. But even before COVID-19, in 2019, mortgage rates hovered around 5%.

So where does that leave us now?

Higher Rates Should Cool Prices… But Do They Really?

Conventional wisdom says higher interest rates should slow the housing market and keep home prices in check. After all, when borrowing costs rise, buyers can afford less house for the same monthly payment. This theoretically puts downward pressure on prices.

But here’s the twist: despite these higher rates, home prices are still going up in many markets. Why?

• Demand remains strong. People still want—and often need—to buy homes.

• Inventory is low. There simply aren’t enough houses for sale, and sellers are reluctant to let go of the ultra-low mortgage rates they locked in years ago.

• Sellers have to list at prices buyers can afford. So prices might be rising more slowly, but they’re still rising because of the sheer imbalance between supply and demand.

Who Profits From Higher Interest Rates?

It’s easy to feel frustrated when rates jump. But it’s worth asking: who actually benefits?

• Banks and lenders. They can earn higher yields on loans in a high-rate environment.

• Bond holders. Over time, bonds issued at higher interest rates pay better returns.

• Savers. Savings accounts and CDs offer higher interest rates than we’ve seen in years.

So while borrowers feel the pinch, plenty of other players profit from a higher-rate world.

Interest Rates Are Part of the Process

Here’s my honest opinion: interest rates are simply part of the process. As consumers, we have little direct control over them. And trying to “time the market” perfectly based on interest rates is incredibly difficult.

Could you try to wait for rates to drop, then swoop in and buy as much real estate as possible? Sure. But unless your timing is perfect, you could end up in a wash — with little difference from buying at any other time.

Live Your Life

My best advice? Live your life. Don’t let interest rates alone determine your quality of life or major decisions like buying a home.

Yes, rates matter. They affect your budget and your payment. But your long-term happiness in a home, or the benefits of owning real estate, are bigger than a few percentage points on your mortgage.

So be smart, save your money, watch the market… but don’t let interest rates rule your life.