"Most buyers are conditioned to believe: wait for interest rates to fall and homes will finally be affordable again. It sounds logical; that lower rates should mean lower monthly payments and that is affordability, right? Except history shows something very different, something counter to what we have been led to believe; that when interest rates do fall, home prices usually rise; which may make home less affordable."
"The biggest affordability force in today's housing market is not interest rates, it is in fact; inventory the number of homes for sale. So when rates fall (even a little), buyers surge back into a market that has nowhere near enough homes to absorb the increase in demand. This pattern is easy to see when you look at the mainstream price trackers from Zillow, Redfin and Realtor.com."
"Zillow's Home Value Index (ZHVI) is one of the clearest consumer-facing measures of home values. It tracks the typical value of homes across the entire housing stock, including single-family residences, condos, and co-ops. According to Zillow: During the pandemic low rate environment (shaded), home values rose by nearly 38% from February 2020 to May 2023 Prices barely dipped in 2022 even though mortgage rates doubled In 2023 and 2024, prices resumed climbing as inventory stayed tight This pattern will repeat itself every time: low supply keeps prices elevated regardless of mortgage rates."
Buyers often expect lower interest rates to restore affordability, but historical trends show falling rates commonly coincide with rising home prices. Increased buyer demand meets a housing supply that barely changes, producing bidding wars and price growth that wipe out monthly-payment savings. Inventory scarcity, not interest rates, drives the largest affordability pressure. Mainstream trackers reflect this dynamic: Zillow's ZHVI rose nearly 38% from February 2020 to May 2023, prices barely dipped in 2022 despite mortgage rates doubling, and prices climbed again in 2023–24 as inventory stayed tight. Redfin's index shows similar pandemic-era price acceleration.
Read at www.housingwire.com
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