Why Home Prices Don’t Fall When Rates Rise

It seems logical that higher mortgage rates should push home prices down, but the housing market does not react that simply.

As of 2026, mortgage rates are around 6.5%–6.6%, significantly higher than the ultra-low rates seen during 2020–2021. Yet home prices have remained relatively stable in many markets.

The main reason is supply lock-in. Millions of homeowners refinanced at historically low rates and are now unwilling to sell and take on significantly higher monthly payments.

This creates a shortage of available homes, even when demand slows.

At the same time, new construction also slows when rates rise, preventing oversupply from entering the market.

The result is a standoff: fewer buyers and fewer sellers at the same time. Instead of prices falling sharply, the market often becomes stagnant.

Housing behaves differently from other markets because it is illiquid, emotional, and supply-constrained.