When mortgage rates rise, many homebuyers assume that home prices will fall. The logic seems sound: if borrowing becomes more expensive, then fewer people can afford homes—so prices should go down to meet the lower demand. This belief is especially common among those hoping to time the market for a better deal.
However, historical data tells a different story.
Over the past 30 years, the U.S. housing market has shown that rising mortgage rates don’t necessarily lead to falling home prices. In fact, more often than not, prices continue to rise, even when rates climb. According to research from Visual Capitalist covering 1992 to 2022, in 117 months where mortgage rates increased, home prices also went up. During that same period, only six months saw both rising rates and falling prices, primarily during the Global Financial Crisis and its recovery.
This blog will unpack the real relationship between mortgage rates and home prices using decades of historical data. Our goal is to move past assumptions and give you a clear, data-driven understanding of what really happens when rates rise; and what it means for today’s homebuyers.
The Assumption: Higher Rates Should Lower Prices
It’s natural for buyers to assume that rising mortgage rates should lead to falling home prices. After all, as interest rates go up, so do monthly mortgage payments, making homes less affordable for the average buyer. This creates the expectation that if people can’t afford to borrow as much, home prices will have to come down to match shrinking budgets.
This assumption is rooted in basic affordability math. When rates are low, buyers can afford to borrow more for the same monthly payment. Conversely, when rates rise (even by just a percentage point) the cost of borrowing increases significantly. For example, between 2022 and 2023, rates jumped from around 3% to over 7%, pushing monthly principal and interest payments on a $400,000 loan up by roughly 78%. In theory, this sharp rise in borrowing costs should cool demand and force sellers to lower prices.
From a buyer’s standpoint, the logic feels fair: if they’re paying more in interest, they expect to pay less for the home itself. But while this reasoning makes sense in isolation, it overlooks the broader economic forces that shape home prices—especially supply constraints, income growth, and investor activity. The result? A gap between what buyers expect and how the market actually behaves.
What the Data Actually Shows
While the assumption that higher mortgage rates will lead to lower home prices is widespread, historical data paints a different picture.
An extensive study by Visual Capitalist, based on data from 1992 to 2022, analyzed how home prices and mortgage rates moved in tandem across different market cycles. The results are clear: home prices have historically risen even during periods of rising mortgage rates.
Out of the 365 months examined:
- 117 months saw both mortgage rates and home prices increase.
- Only 6 months experienced both rising rates and declining home prices.
This strongly suggests that rate increases alone do not reliably trigger price declines. In fact, one of the most common patterns observed was price appreciation during times of rate growth, often because these periods coincided with strong economic fundamentals like low unemployment and rising wages.
The exceptions to this trend are concentrated around the Global Financial Crisis (2008–2011). During this time, mortgage rates and home prices both fell, driven not by interest rates themselves but by a collapse in financial markets, subprime lending, and widespread defaults. Another small cluster of months with price declines occurred during the post-recession recovery, when housing still lagged behind broader economic recovery.
Aside from these outlier periods, the data shows that rising mortgage rates have rarely caused nominal home price declines. Instead, the typical result is a slowing of price growth, not a reversal. This is a key distinction: buyers waiting for significant price drops purely due to higher rates are often disappointed.
Why Prices Often Rise with Rates
To understand why home prices often rise alongside mortgage rates, it’s important to look beyond borrowing costs and consider the broader market forces that drive housing demand and pricing.
First, rising rates typically signal a strong economy.
When the Federal Reserve raises interest rates, it’s often in response to inflation, wage growth, and low unemployment, signs that the economy is doing well. In such environments, more people are employed, incomes are rising, and consumer confidence is high. This fuels demand for housing, even as borrowing becomes more expensive. Simply put, if more people can afford to buy despite higher rates, demand remains strong and prices hold or climb.
Second, supply constraints continue to prop up home prices.
Even as affordability shrinks, limited housing inventory acts as a floor for prices. In many markets, a chronic undersupply of homes (especially entry-level or affordable ones) means that competition remains high. As noted by Zillow’s CEO, Jeremy Wacksman, one of the biggest obstacles for buyers today isn’t just volatile interest rates, but a severe shortage of available homes. When there aren’t enough listings to meet demand, prices are more likely to stabilize or increase, regardless of what mortgage rates are doing.
Finally, there’s a lag between rate hikes and market response.
Home prices don’t react immediately to interest rate changes. In most cases, rising rates slow the pace of appreciation rather than reverse it. For example, data from 2022 showed a modest deceleration in home price growth when mortgage rates spiked past 6%, but in most regions, prices still rose. Only when rates stay high for extended periods, and affordability severely erodes, does price pressure start to mount. Even then, it depends on other local factors like job growth and new construction.
In short, higher rates do affect buyer behavior, but strong economic conditions and low inventory often outweigh the affordability squeeze. This is why home prices can—and often do—rise alongside mortgage rates.
What This Means for Buyers Today
For today’s buyers, the takeaway is clear: rising mortgage rates reduce affordability, but they don’t guarantee that home prices will fall. While higher rates increase monthly payments and limit borrowing power, they rarely lead to significant price drops unless paired with broader economic distress or a surge in housing supply.
This means that waiting for home prices to fall simply because rates are high can be a risky strategy. If demand remains steady and inventory stays low (as is the case in many U.S. markets) home prices may continue to rise or stay flat, even as mortgage costs climb. In that case, buyers who wait may end up paying more in the long run through both higher prices and higher interest.
Instead of trying to time the market perfectly, buyers should focus on long-term value. If you find a home that fits your needs and you can afford it comfortably, locking in now could make sense, especially if you plan to stay for several years. You can always refinance later if rates drop, but lost time in a rising market may not be recoverable.
Ultimately, it’s less about reacting to headlines and more about making a decision that aligns with your personal finances, goals, and the realities of your local market.
Conclusion
The belief that rising mortgage rates will automatically lead to falling home prices is not supported by decades of historical data. While higher rates do reduce affordability and can slow price growth, they rarely cause home values to decline, especially in markets with strong demand and limited supply.
Homebuyers today should base their decisions on facts, not assumptions. Timing the market based on interest rate fluctuations alone can backfire, particularly if prices continue to rise or competition intensifies.
If you're navigating the current market and unsure how rates might impact your purchase, contact the Zaplac Group today. We’ll help you make a well-informed, strategic move based on your goals, local conditions, and the broader economic landscape.
