Mortgage rates have risen to 7.28%, so why aren't home prices falling? Is now a good time to buy a house or housing-related stocks?
2026-10-03
Why home prices don't fall as rates rise
The Freddie Mac 30-year fixed mortgage rate rose to 7.28% from 7.03% a week earlier, the highest since November 2023. Applications fell for the fourth straight week (Freddie Mac, Axios, 2026-10-01). Yet existing-home prices rose 1.9% year over year, actually accelerating (Morgan Stanley's Jim Egan, CNBC).
The reason is lock-in. Homeowners with low-rate loans don't list their homes because selling and buying again would raise their interest costs sharply. Buyers shrink and sellers shrink, so transactions freeze and prices don't fall much. According to Egan, the monthly payment on a median-priced home is $300 (15%) higher than at the February low.
Signs that prices are splitting
New homes are a different story. New-home inventory is the highest since 2008-2009, and the median price is below that of existing homes for the first time in decades (CNBC). Builders have to cut prices or use rate subsidies (buy-downs) to move inventory.
| Segment | Now | Pressure |
|---|---|---|
| Existing homes | Locked-in supply, prices +1.9% | Unlocks only when rates fall |
| New homes | Record inventory, weak prices | Squeeze on builder margins |
Scenarios
- Rates stuck (10-year around 5.3%): Existing-home prices stall and new-home discounts continue. Homebuilders and mortgage finance are weak. This is the most likely path.
- Rates fall (weak jobs drag long-term yields down too): Lock-in eases, listings increase and transactions revive. Prices could still be adjusted once more. Given that the 10-year rose today even though jobs were bad, it will take time.
- Rates rise further (a hike at the October FOMC, etc.): Falling applications continue and builder price cuts spread.
What investors should do
- Housing-related ETFs and builder stocks are safer not to add to until the 10-year is confirmed to fall below 5.3%.
- If you are buying to live in, new homes leave more room for negotiation than existing homes. Be sure to compare the rate subsidy terms builders offer.
- If you have a floating-rate loan, this is the range where repayment burden grows first. It may be worth checking the terms for switching to a fixed rate before the October 28 FOMC.