Higher mortgage rates undo a third of this year’s affordability gains

In short: Affordability is still better than last year, but rising rates have eroded recent gains and shaken buyer confidence – meaning some may hesitate or delay until a clearer picture emerges. 

Mortgage rates back to mid-6%

Mortgage rates have risen back to the mid-6% range, after briefly falling below the important psychological threshold of 6%. Here lies the conundrum for what it means for home buying and selling – affordability is still improved from a year ago, but about a third of the gains have reversed in recent weeks. Home shoppers can still afford more than they could last year, but because of the hit to sentiment — both with anchoring on the buying power from a few weeks ago, and uncertainty about their financial prospects — some may choose to wait to transact. 

What’s the impact on housing? 

As Zillow’s chief economist noted, the impact on the housing market depends on how long the rate shock lasts. The bulk of home activity typically happens between March and October. Though the scenario modeling is linear for simplicity, if the situation resolves quickly, it’ll be early enough in the home shopping season for catch-up activity, and transactions might be higher than our modeled scenarios. The longer it takes for the rate shock to resolve, the more likely transactions would be delayed to next season, offering a repeat of 2025.

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