High interest rates are stifling the US housing market

A 6.66 per cent interest rate on 30-year fixed-rate mortgages and a continuing shortage of supply are once again putting the brakes on the US housing market. Sales are falling, affordability is deteriorating further, and even new housing legislation is unlikely to provide any relief before 2027.

The latest rise in interest rates is hitting a market that has never really recovered from the initial shockwave. As at 27 August 2026, Freddie Mac reported that the average rate for 30-year fixed-rate mortgages had risen again to 6.66 per cent. At the same time, purchase prices remained high, even though the number of transactions continued to fall.

The pressure is clearly evident in the existing housing market. According to the National Association of Realtors, sales of existing homes fell by 1.7 per cent month-on-month in July 2026 to an annualised 4.06 million units. The median price stood at $431,400. The record high of $440,600 was set in June 2026, not July.

Lock-in is hampering supply
The market is suffering not only from expensive financing but also from a structural shortage of supply. J.P. Morgan points to years of under-production following the 2008 financial crisis and, whilst expecting prices to stagnate in its base-case scenario for 2026, anticipates rises again in 2027. The lock-in effect remains a key driver. Many homeowners are holding on to older, significantly cheaper mortgages and are refraining from selling because financing a replacement property would be vastly more expensive today.

The sentiment amongst developers also illustrates just how tight the situation remains for construction and sales. Although the NAHB/Wells Fargo Housing Market Index rose slightly to 35 points in August, it remained well below the expansion threshold of 50. At the same time, the association reports a further deterioration in affordability in the second quarter of 2026. A household on a median income recently had to spend 34 per cent of its income on the mortgage for a new-build property at the median price.

Policy focuses on supply, but impact is slow to materialise
Washington is now attempting to take countermeasures, but the relief is limited for the time being. A wide-ranging reform bill, the ROAD to Housing Act, is currently before Congress, aiming to create more housing, streamline procedures and provide additional support mechanisms. Even if effective elements of the bill are implemented swiftly, this will not resolve either the pressure from interest rates or the lock-in effect in the short term. For homeowners, developers and investors, this is the key takeaway. The US housing market will remain trapped in a phase of stalled mobility, weak sales and persistently high price sensitivity until at least 2027.