The interplay between interest rates and house prices has long fascinated economists, homebuyers, and real estate professionals alike. Historically, this relationship is pivotal in shaping housing markets and understanding broader economic trends.

Interest rates, set by central banks and influenced by monetary policy, significantly impact borrowing costs. When interest rates are low, mortgage rates tend to follow suit, making home loans more affordable. This increased affordability can boost demand for homes, often leading to higher house prices as more buyers compete for available properties. In contrast, when interest rates rise, borrowing becomes more expensive. Higher mortgage rates can cool buyer demand within the market, often causing house prices to stabilize or decline as fewer buyers can afford to buy during these times.

The late 20th century provides a clear example - During the 1980s, interest rates surged to unprecedented levels, peaking at over 18% in the United States. This spike in rates led to a significant cooling of the housing market, with house prices stagnating, but often decreasing in some areas. Conversely, during the early 2000s, we saw a period of low interest rates, contributing to a housing boom as more people entered the market, and drove up home prices.

Over the past five years, mortgage interest rates have experienced notable fluctuations. Starting from relatively low levels in early 2019, rates fell even lower in 2020 as rates were cut to stimulate economies affected by the COVID-19 pandemic. This trend continued into 2021 and early 2022, with rates hitting historic lows in the 2% and 3% range. However, by mid-2022, inflation concerns prompted the Federal Reserve to raise rates significantly. This cycle persisted into 2023 and 2024, leading to a notable increase in mortgage rates, which have remained elevated compared to the pandemic-era lows. Over the past few months however, we have been seeing rates lighten up and return to the 5% and 6% range, with further rate cuts anticipated in September.

Median Sales Price of Houses Sold in the U.S. from January 2020 – January 2022, Price trended upward during this time period.

30 Year Fixed Rate Mortgage Average in the U.S. from January 2020 – January 2022. Rates were very low during this time period, coinciding with the historical pattern of house prices and mortgage rates.

Ultimately, understanding this relationship can help buyers navigate the housing market and make informed decisions based on their current living needs and the current economic conditions