MARKET RESEARCH
RISING MORTGAGE RATES ARE CHANGING THE MATH FOR BUYERS.
HERE’S WHAT THAT MEANS FOR SELLERS
Rising mortgage rates are slowing homebuyer demand, but there are two reasons now isn’t the worst time to sell. One: Home prices have been resilient, but that may not last. Two: You can now earn more with the money you free up from selling.
Average mortgage rates have risen from 6% in March to over 7% today. With the Federal Reserve signaling the high possibility of continued rate hikes, real estate agents and potential sellers alike are asking a critical question: What does this shifting financial landscape mean for me?
HIGHER RATES MEAN LOWER BUYER PURCHASING POWER
First, it’s critical to understand how rising rates are impacting homebuyer purchasing power, and thus, demand for your home. Let’s say a household earning the median U.S. household incomeof $91,000 is looking to buy a home at today’s mortgage rates of roughly 7%.They qualify for a conventional mortgage loan of $290,000 assuming a 36% maximum debt-to-income ratio, property taxes and insurance costs totaling 1% of the property value per year, and $500 of other monthly debt obligations. Now let’s say they have enough savings for a 20% down payment. This means they could make a maximum offer of $362,000 including that down payment.
This is $46,000 less purchasing power than the median household had in 2021despite the fact that the median household income has risen about 23% since then. Here’s why. Mortgage rates in 2021 were roughly 3%—less than half what they are now. Back then, a similar household would have qualified for a mortgage of $327,000, allowing them to make a maximum offer of $408,000.
Some prospective buyers can adjust by making larger down payments, paying down existing debt,buying smaller homes, or choosing to rent longer. But these strategies aren’t all feasible at scale.For example, not every homebuyer can purchase a small home because there are only so many small homes to go around.
HOME PRICES ARE STICKY AND TAKE TIME TO CATCH UP TO MORTGAGE RATES
So what does reduced buyer purchasing power mean for sellers? While one might think that it would immediately depress home prices, the academic literature paints a more nuanced picture.Research by Capozza et al. (2002) and Gallin (2008) indicates that while interest rate swingsdo impact prices over time, full market adjustments can take several years. This is in part due to behavioral phenomena like loss aversion and price anchoring–basically meaning sellers hate listing their homes for less than they paid or less than they saw their neighbor’s house sell for during the pandemic. This is one reason we haven’t seen major U.S. home-price declines yet,despite sluggish homebuyer demand.
More recently, Batzer et al. (2026) pointed out another important stabilizing factor for home prices.Homeowners who secured ultra-low mortgage rates during the pandemic are often hesitant tosell and relinquish that rate. The inventory restriction caused by this mortgage “lock-in” effect can offset the downward price pressure caused by higher interest rates. This means that rather than falling, home prices may simply stagnate while the rest of the economy grows.
It is worth noting that the impact of interest rate changes varies locally depending on how close local buyers are to debt-to-income limits (Larson (2022)).
Key takeaway: Home prices have held up so far, but higher rates will continue to be a headwind.Potential sellers should be aware that if they wait to list, the market may adjust and they may no longer be able to take advantage of lingering high prices.
UNDERSTANDING SHIFTING CARRYING COSTS
It’s important for homeowners to understand what current rate trends mean for their carryingcosts–the costs of holding and maintaining their home until it sells–because carrying costs can determine whether it’s a good idea to sell now or wait. Most owners are at least somewhat aware of their out-of-pocket expenses like mortgage payments, taxes, insurance, and maintenance.Fewer consider opportunity costs like the return they could get on their money if it wasn’t locked up in their home. For instance, when bond yields are at 5.2% like they are now, a homeowner with$150,000 in home equity could be earning $650 per month if their money was invested in bonds instead. Those foregone earnings grow if interest rates (and thus bond yields) rise; that $650 grows by $125 for every percentage point increase in interest rates.
Key takeaway: Elevated interest rates mean that the money sellers free up can earn more than before—especially important for sellers with a lot of home equity.
[1] Capozza, D. R., Hendershott, P. H., Mack, C., and Mayer, C. J. (2002). “Determinants of Real House Price Dynamics”. National Bureau of Economic Research Working Paper
[1] Gallin, J. (2008). “The Long-Run Relationship Between House Prices and Rents”. Real Estate Economics[1] Batzer, R., Coste, J., Doerner, W., Seiler, M. (2026) “The Lock-In Effect of Rising Mortgage Rates on Housing
Market Dynamics”. Journal of Banking and Finance
[1] William D. Larson, (2022). “Effects of Mortgage Interest Rates on House Price Appreciation: The Role of Payment Constraints,” FHFA Staff Working Papers
