Short Answer: In the near term, it makes buying a house more expensive. In the longer term, to the extent that raising interest rates “slows the economy” faster than otherwise would be the case, it could assist in bringing home prices down.
Long Answer: Housing has undoubtedly been a victim of Federal Reserve policy in that the expanding money supply via the banking system has fed through directly to higher housing prices. We’re now at the point where affordability is a serious problem for most. Lower rates helped to offset rising prices, but we’ve reached the point – certainly with higher rates – where there’s just no more wiggle room. The quarter point increase in interest rates in September will only add fuel to the fire in terms of housing affordability. For a $750,000 30-year fixed mortgage, a jump from 7% to 7.25% raises the monthly payment $127, to $5,116. The silver lining, if there is one, is that this recent increase in rates may help to catalyze the only long-term solution to the housing affordability issue – a decline in house prices themselves. Higher interest rates aren’t the problem with the housing market; prices are. As is evident in the chart below, since 2000, median home price increases have outpaced median wage increases fairly steadily with the only retracements back toward parity being during economic slowdowns. Home prices need to come down. And, whatever needs to occur with respect to the economy and markets for that to happen, must be allowed – on some level – to play out. We can’t have it both ways.
Editor’s Note: This article was originally published in the October 2026 edition of our Cadence Clips newsletter.
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