Housing Market Update: Rates Tick Up as Affordability Remains Tight

Freddie Mac is reporting that the 30 year fixed-rate mortgage average rate rose to 6.22% from 6.19% in the prior week. The recent cycle lows going back to October 2022 is at 6.09%.Current Market SnapshotThe housing market continues to navigate a complex environment of fluctuating rates and sticky prices. While the Federal Reserve cut interest rates by 25 basis points yesterday, mortgage rates have moved in the opposite direction this week, highlighting the disconnect that often exists between Fed policy and long-term bond yields.Mortgage Rates: According to Freddie Mac, the average 30-year fixed mortgage rate rose to 6.22% this week, up from 6.19% the previous week.Inventory Levels: Housing supply is slowly recovering but remains approximately 13% below pre-pandemic levels. We are seeing regional disparities, with inventory surging in the South and West (rising above pre-pandemic norms in cities like Denver and Austin) while remaining tight in the Northeast.Price Trends: National median list prices are largely flat year-over-year at approximately $424,000. However, about 20% of listings are seeing price cuts, suggesting sellers are having to adjust expectations to meet stretched buyers.The Affordability CrunchAffordability remains the primary headwind for prospective buyers. Despite the Fed's easing cycle, the combination of home prices near record highs and mortgage rates above 6% keeps monthly payments elevated.Delinquencies Outlook: Recent credit reports suggest a modest rise in mortgage delinquencies heading into 2026 as the "affordability squeeze" tests borrower resilience.Buyer Behavior: A new report from Zillow indicates that many buyers are skipping the "rate shopping" phase in a rush to secure homes, potentially costing them significant savings in a volatile rate environment.Chair Powell on Housing: The "Lock-In" Effect and SupplyDuring yesterday’s post-meeting press conference, Federal Reserve Chair Jerome Powell addressed the housing market directly, offering a sobering view on why lower Fed rates haven't immediately fixed the sector's issues.1. The "Lock-In" Effect is Stifling Supply Powell emphasized that the housing market is effectively "frozen" because millions of Americans are holding onto mortgages with rates between 2% and 3%. Even as the Fed cuts rates, current market rates (near 6%) are too high to entice these owners to sell and move, keeping resale inventory artificially low.2. Inflation & Housing Services Powell noted that while the Fed has made progress on inflation, housing services inflation remains sticky. He described the current policy stance as "modestly restrictive," which is helping to cool the economy, but he acknowledged that monetary policy alone cannot fix structural housing supply deficits.3. The Tariff Impact When addressing recent inflation data, Powell attributed much of the current "heat" to tariffs, describing them as a "one-time price increase." However, he warned that if these policy shifts lead to higher costs for construction materials or labor shortages (via immigration changes), it could exacerbate the housing supply shortage further.Outlook for 2026The path forward for housing depends heavily on the interplay between Treasury yields and Fed policy. While the Fed is signaling a "dovish but data-dependent" path, the bond market—which dictates mortgage rates—remains wary of long-term inflation risks. For now, buyers should expect rates to remain in the 6% range, with affordability improving only gradually as income growth catches up to home prices.