People today talk about 6–7% mortgage rates as though they are extreme. But if we zoom out, these rates are actually much closer to long-term historical averages than the unusually cheap borrowing environment that followed the 2008 financial crisis. For more than a decade, the U.S. economy became accustomed to near-zero interest rates, quantitative easing and extraordinarily cheap debt. That environment shaped everything, including housing prices, investor behavior, construction trends and consumer expectations. We essentially normalized cheap money.

The question I ask myself today is whether the current problem is really high interest rates, or whether the actual distortion was the prolonged era of artificially low rates that came before it.

The era of cheap money that reshaped the housing market

Following the 2008 financial crisis, central banks aggressively lowered interest rates in order to stimulate borrowing, spending and economic growth. Mortgage rates remained historically low for years, and during the pandemic they fell even further. For a long time, borrowing money became exceptionally cheap.

At first, this helped to boost the housing market and increased affordability for many buyers. Lower monthly mortgage payments allowed homehunters to purchase more expensive homes while enjoying very manageable repayments. But in time, the market adjusted to these conditions, and when financing becomes cheaper, asset prices tend to rise. Housing was no exception. Home values climbed rapidly across much of the United States as cheap debt increased purchasing power and intensified competition for homes. In many markets, prices detached from underlying income growth and affordability fundamentals.

This created a dangerous illusion because buyers weren’t necessarily wealthier, but they did gain access to larger amounts of leverage. The affordability many people felt was, in part, a product of unusually inexpensive financing conditions.

Housing affordability is about far more than mortgage rates

Mortgage rates have become the focal point of the conversation on housing, but they are only one component of affordability. In reality, the total cost of homeownership has increased dramatically across several areas simultaneously.

Property taxes have risen alongside home values. Insurance premiums have surged in many parts of the country, particularly in states exposed to climate-related risks such as Florida and California. Maintenance, utilities and general living expenses have also become more expensive due to inflation.

Migration trends have further complicated things. During and after the pandemic, large numbers of people relocated from high-cost urban areas into lower-cost regions across the South and Sun Belt. Builders responded aggressively to that surge in demand, but as migration has slowed, some of those markets are now experiencing rising inventory and softening demand. The result is a market where affordability challenges are structural and very much tied to the full economics of ownership.

A market dependent on abnormal conditions

One of the biggest consequences of the ultra-low-rate era is that the housing market became dependent on conditions that were unlikely to last forever. Millions of homeowners locked in mortgage rates below 3% during the pandemic years. Today, many are reluctant to sell because moving would require financing a new home at substantially higher rates. This has contributed to frozen inventory and reduced transaction activity across many housing markets.

Meanwhile, builders have attempted to preserve affordability through creative financing structures. And while these products may help stimulate short-term demand, they also risk recreating some of the same problems the housing market faced in previous cycles if buyers become dependent on financing conditions that later disappear.

Many prospective buyers are now waiting for mortgage rates to return to the levels seen between 2020 and 2021. But that expectation itself may reflect how deeply the market internalized a financial abnormality. Historically speaking, today’s interest rates are not especially unusual, unlike the extended period of extraordinarily cheap money that preceded them.

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