Do higher mortgage rates really make homes more affordable?

When mortgage rates rise sharply, homes become hard to afford even if home prices stop rising. For example in the U.S., the monthly payment has risen 77% relative to income between 2020 and 2025.

Like many of you, I worry about the cost of buying a home, for ourselves, for our children or for someone we love.

So today's Wall Street Journal op-ed celebrating the rise of mortgage rates, "Hurray for Higher Mortgage Rates", caught my attention. It basically argues that higher rates could in fact make homes more affordable. The logic makes sense: More expensive borrowing should put pressure on home prices.

I LOVE arguments that challenge conventional wisdom. But one of my leadership principles is: "Substance - accurate facts and critical thinking".

So let's verify. I looked at 50 years of US housing data - US reliable data is easy to find.

My conclusion is that the article is right in theory, but wrong for anyone buying a home today.

Look at the graphs below. The negative correlation between home prices and mortgage rates (the theory behind the WSJ article) was relatively true but not great until 2020 - and it's been wrong since then. Part of the reason: prices react to rates with a lag, and many owners locked into 3% mortgages won't sell, which keeps supply tight and prices high.

But even more importantly, the correlation between 1) mortgage rates and 3) the share of income that goes into mortgage payments, is actually very high.

The problem is that prices adjust slowly, while mortgage payments adjust immediately. Compared with 2020, when mortgage rates were close to 3%, the cost of carrying a mortgage relative to household income is now about 77% higher. In 1981 it was even worse: when rates reached almost 17%, it was about 2.7 times the 2020 level.

Today, the payment burden is also about 17% above its long-run average. Recently, rates rose sharply, but prices relative to income declined very little. Affordability can improve if prices stop rising while incomes keep growing. But that takes time. Someone buying a home today pays the higher mortgage rate today.

Look at the chart again: the higher the mortgage rates, the more burden relative to income. It's a fact, unfortunately.

Bottom line: I would not celebrate higher mortgage rates as good news for people trying to buy a home. And my own view, beyond the data: if we want to improve housing affordability for ourselves and our children, I'd put much more faith in making it easier to build homes where people actually want and need to live.

How did I do this? I used US data from 1975 to 2025: Freddie Mac mortgage rates, the FHFA house price index and Census household income. I calculated home prices relative to income and mortgage payments relative to income. The mortgage calculation assumes 20% down and a 30-year fixed loan, principal and interest only.

Analysis: NeuronVentures