When cheaper rates make homes less affordable: What Zillow, Redfin, and Realtor.com data reveals
Most buyers are conditioned to believe: wait for interest rates to fall and homes will finally be affordable again.
It sounds logical; that lower rates should mean lower monthly payments and that is affordability, right?
Except history shows something very different, something counter to what we have been led to believe; that when interest rates do fall, home prices usually rise; which may make home less affordable. And the reason is simple: when more buyers rush in, but the number of homes for sale barely changes, then demand outpaces supply and the conditions for an affordability storm are in full effect. The resulting waves of competition, bidding wars, and price increases inherently wipe out any savings borrowers hoped to gain from a lower interest rate.
The real problem: Too many buyers, too few homes
The biggest affordability force in today’s housing market is not interest rates, it is in fact; inventory – the number of homes for sale. So when rates fall (even a little), buyers surge back into a market that has nowhere near enough homes to absorb the increase in demand. Home prices naturally climb. This pattern is easy to see when you look at the mainstream price trackers from Zillow, Redfin and Realtor.com.
What Zillow shows: Prices have climbed about 50 percent since 2019
Zillow’s Home Value Index (ZHVI) is one of the clearest consumer-facing measures of home values. It tracks the typical value of homes across the entire housing stock, including single-family residences, condos, and co-ops.
According to Zillow:
During the pandemic low rate environment (shaded), home values rose by nearly 38% from February 2020 to May 2023
Prices barely dipped in 2022 even though mortgage rates doubled
In 2023 and 2024, prices resumed climbing as inventory stayed tight
This pattern will repeat itself every time: low supply keeps prices elevated regardless of mortgage rates.
What Redfin shows: Prices are still above their 2022 peak
Redfin’s Home Price Index also captures the pandemic housing surge, but through a different lens. Instead of reporting dollar values like Zillow, Redfin tracks how quickly home prices move up or down each month and year. During the pandemic low-rate window, Redfin’s percentage changes reveal one of the fastest price accelerations in modern history.
According to Redfin, during the pandemic period shaded in grey, the data shows:
In 2020 and 2021, monthly price gains consistently ran above historical norms, often posting year-over-year increases of 15% to 20%
The index showed no meaningful slowdown until mortgage rates doubled in 2022
By late 2023 and into 2024, Redfin’s data showed home prices once again running above their 2022 peak, despite 20-year-high mortgage rates
Redfin’s data makes the pandemic story undeniable: record-low rates did not make homes cheaper, but instead triggered a price wave that pushed homes further out of reach.
What Realtor.com shows: The supply shortage is the root cause
Realtor.com’s Monthly Housing Inventory Report and specifically the total listing count, reveals the most telling clue: America simply does not have enough homes for sale to meet the demand. The Report’s National total listing count data, shows very clearly:
For the period preceding the pandemic in grey, the average monthly listing count was 1,547,541 listings
Through the pandemic, the average dipped to 1,127,117 listings, which is a 27% drop
For the period post, the average rebounded slightly to 1,287,508 listings
Realtor.com makes clear what buyers experience firsthand: with inventory tight, prices cannot fall in any meaningful way. And while lower interest rates can help some realize their homeownership dreams, more often it is the case that home prices rise when interest rates go lower, and end up making homes less affordable.
The real lesson for consumers
For today’s buyers, the smartest move is not trying to “time the dip.” The real opportunity comes from buying when you are financially ready, when you find a home that fits your needs and when competition is manageable. Because in today’s market, lower rates do not guarantee affordability, having more homes on the market does. And until that changes, waiting for the perfect moment may be the most expensive choice of all.
Hector Amendola is the President of Panorama Mortgage Group.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.