Interest rate levels impact all of us in some way (for better or worse). I talked to a client this week about the impact of rates on housing. Let’s take a look.

It’s no secret that interest rates have moved up in 2026 (instead of the projected downward trajectory). This is due to a host of factors, including inflationary pressures from Middle East conflict and added supply in the bond market due to borrowing needs of AI hyperscalers. One area of the economy where rising rates are having very real consequences is the housing market.

Given the dollar value of homes in America, most individuals need to borrow funds for the purchase via a debt instrument known as a mortgage. For many, a popular mortgage type is the 30-year fixed rate mortgage as it allows for the longest amortization period and a known payment for up to a 30 year duration. This rate spiked over 7% last week for the first time since 2025 (it sat at 6.3% a year ago). Such an increase in rates trickles thru the economy – making houses harder to afford (as monthly payments increase as interest component is higher) and causing housing turnover and development to slow (as current owners don’t want to/can’t afford to leave their lower-rate mortgages and builders don’t want to accumulate inventory at a time when buyers are less plentiful).

The higher trend in rates during 2026 is impacting the housing market numbers. Sales of existing homes fell 2 percent in August from July and are at their lowest level since June 2025.

Higher rates and a slowing housing market can impact all of us, even those who presently own homes with locked-in low mortgage rates or without a mortgage at all. As a consumer-driven economy in the US, a healthy and active housing market is a key component. First time home buyers tend to purchase many other items to fill those homes, leading to further economic activity. Further, for current home owners, accessing the equity in their homes (via home equity loans/lines of credit) is also another driver of consumer spending. Those rates are variable and are also trending higher.

Growth in the US is strong (for other reasons like AI build out) at the moment, but a renewal in the housing market activity will be another helpful tailwind. However, it’s likely we may not see such movement until rates start to move the other way.