High mortgage rates are deepening a ‘K-shaped’ housing market

By Samantha Delouya, CNN

(CNN) — In today’s housing market, there is a growing divide between the “haves” and the “have-nots.”

The typical homebuyer faces mounting affordability challenges as home prices rise and inventory remains limited. Adding to the pressure: The recent surge in mortgage rates is making the decision to buy a home even more difficult for many, deepening affordability challenges

The average 30-year fixed mortgage rate was 7.4% this week, according to data released Thursday by Freddie Mac. That’s a significant jump from this time last year, when the average 30-year fixed mortgage rate was 6.27%.

With the US midterm elections just weeks away, rising mortgage rates are adding fresh pressure to an already strained housing market at a time when affordability issues are a key concern for many voters.

Higher-income buyers, buoyed by more cash on hand and larger budgets, are accounting for a growing share of the housing market, while lower-income buyers struggle to keep up. It’s a divide that reflects the broader “K-shaped” economy: as the cost of living rises, wealthier Americans are better positioned to absorb the hit, while those with tighter budgets have less room to spare.

The same split is playing out in the housing market: Americans who are less sensitive to higher interest rates increasingly have the upper hand.

“It’s very expensive to get into a house if you’re looking for one right now,” said Oscar Munoz, head of US economics at TD Securities. “The only people that we find are driving transactions in the housing market are high-income consumers.”

“They have the wealth to transact in this market, which is unaffordable for most Americans,” Munoz added.

Data from TD Securities, commissioned by Morning Consult, shows a growing divergence in homebuying intentions this year. After tracking broadly with other income groups for several years, Americans earning $100,000 or more are now increasingly likely to say they want to buy a home, compared to lower-income consumers.

The recent rise in mortgage rates above 7% may widen the gap, Munoz said, as higher monthly payments make it harder for lower-income Americans to qualify for a mortgage or afford the payments if they do.

Higher-end buyers are likely also benefiting from a strong stock market, which hit record highs as recently as last week, giving them more purchasing power.

“There are different markets by geography, different markets by price point. What we’re seeing is the low end is dragging down the overall market,” Compass CEO Robert Reffkin said of a slowdown in home sales in an appearance on CNBC last month.

Rate-sensitive buyers getting spooked

In Los Angeles, Brock and Lori Harris, a husband-and-wife real estate team, said buyers whose budgets are stretched by the prospect of higher mortgage payments have begun stepping back from the market.

“I always find it funny that cars are marketed as a monthly payment, but homes are not. Homes just show the price and then you have to pull out your mortgage calculator to figure out what your payment is,” said Brock Harris. “And suddenly, that payment is much, much higher than it used to be.”

National data points to a pullback from home shoppers who need to borrow money to afford a home. Mortgage applications last week were 16% lower than the same week one year ago, according to data the Mortgage Bankers Association released Wednesday.

Brock and Lori Harris said they’re seeing more cash buyers in the market in LA, but even those buyers are keeping a tighter grip on their wallets than they did just a few years ago.

“They’re aware, but they’re less sensitive to interest rates,” Lori Harris said of cash buyers. “Whereas a buyer who is taking out a loan might be priced out of a house they qualified to buy just two or three months ago because of these high rates.”

Nationally, cash sales accounted for 27% of transactions in September, according to the National Association of Realtors’ latest data released Tuesday. That is down from 30% a year ago, but mortgage rates didn’t breach 7% until the final week of September, crossing a threshold that some experts say could make buyers who rely on mortgage loans hit pause.

Mortgage rates tend to track bond yields, which have been volatile in recent months as investors anticipate further Federal Reserve rate hikes to rein in inflation. Those expectations have pushed bond yields higher, putting upward pressure on mortgage rates.

In the weeks after mortgage rates crossed 7% late last month, eXp Realty, one of the country’s largest real estate brokerages, saw a higher-than-usual deal cancellation rate, said Leo Pareja, the CEO of AGNT, the parent company of eXp Realty.

“What that tells us is that it is shocking psychologically. It’s a real barrier,” Pareja told CNN, though he added that the deal cancellation rate has since returned to normal levels for this time of year.

For home shoppers still hunting for affordability in this higher interest rate environment, Pareja advised looking at new construction.

New homes have traditionally commanded a price premium over existing homes, but that relationship has flipped over the past two years. Existing home prices rose 1.3% year over year in September to $417,500, marking 39 consecutive months of annual gains, according to NAR. Meanwhile, the median price of a new home was $393,700 in August, according to the latest Census Bureau data.

“Unlike a homeowner who tests the market and doesn’t get their price, they can just pull it off the market if they have a lower interest rate… but a builder is in the business of selling,” Pareja said.

As a result, builders are leaning more heavily on incentives to attract new buyers, including mortgage rate buydowns that can help lower monthly payments, Pareja said.

The-CNN-Wire
™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.