The mechanism killing affordability isn’t the rate on the loan. It’s the price of the house. Allysia Finley of the Wall Street Journal editorial board argues the opposite in Hurray for Higher Mortgage Rates: that the 7.28% average 30-year rate is a healthy reversion to the 8% historical average that prevailed from 1971 to 2019, that higher rates will sideline investors and let wages catch up to home prices, and that the real danger is regulators loosening FHA underwriting. Embrace the reversion, she says. Focus on lifting wages.
She’s describing the right symptom in the wrong place. Higher rates don’t make homes more affordable. They make the monthly payment larger. Walk me through it slowly: which part of a bigger check unlocks the door?
A buyer borrowing $400,000 at 7.28% pays about $2,730 a month in principal and interest. The same loan at 3% costs $1,690. That extra thousand dollars a month is what locks the median-income family out of the median-priced home — and Finley celebrates it.
The rate she’s comparing wasn’t charged against today’s house. In 1971, the median home cost about three years of median family income. Today that ratio is closer to five or six in most major metros. Run today’s principal through that historical rate and the monthly payment more than doubles what a 1990s buyer faced on a comparable-income basis. Finley compares the rate in isolation and calls the comparison fair. It isn’t.
The cleanest test is the 1990s. Rates ran between 7% and 9% and produced what we now treat as a normal housing market. What the 1990s also had was a median home price close to three years of median family income. A 7% rate on a house that costs three years of your income is a different monthly payment than a 7% rate on a house that costs six. The affordability wasn’t in the rate. It was in the ratio.
I’ll grant her the strongest half of this. The sub-3% rates of 2020 and 2021 were an artificial floor. The Fed’s mortgage-backed-securities purchases suppressed yields, and buyers using those cheap rates bid homes up faster than wages could follow. That part is fair.
But the math doesn’t cooperate. Finley is right that wages are now growing faster than home prices — roughly two to one, by the NAR data she cites — but a price-to-income gap built up over the past decade takes decades to close at that differential. Buyers priced out today would still be priced out at retirement.
And the investor squeeze rescues nothing. Fifteen percent of August sales were non-primary residences, down from 21% — but investors were never the dominant buyer. Ordinary families competing with each other against a thin inventory were. Investor demand has cooled partly because rental yields fell below borrowing costs, not because higher rates are performing some public service. The squeeze doesn’t add a single house to the stock. It just removes one source of demand from a market that was already short.
Finley’s strongest point is her warning about FHA underwriting. A 691 credit score combined with a 45% debt-to-income ratio and a 2% down payment is a borrower one job loss away from default. Easing those standards would shove more buyers into loans they can’t carry and would eventually require another round of taxpayer-funded relief. That’s a real risk, and it deserves to be taken seriously. But the cure for that risk isn’t to celebrate the 7% rate as normal. It’s to build.
State and local zoning rules still exclude duplexes, triplexes, and small apartment buildings from most residential lots in most American cities. Impact fees and slow-growth rules block small lots. Construction labor and materials have inflated faster than general inflation for years, and at today’s rates builders can’t pencil new homes, so housing starts have collapsed. The Low-Income Housing Tax Credit is underfunded and overcomplicated. The mortgage interest deduction subsidizes wealthier buyers purchasing larger homes instead of first-time buyers purchasing smaller ones. Let cities build multifamily housing by right, cut the fees and rules that block it, and steer federal dollars into financing construction rather than subsidizing demand through cheaper credit. None of this is fixed by an 8% mortgage.
A high rate on a house that doesn’t exist is still a high rate on a house that doesn’t exist.
Wage growth will follow when housing is plentiful and labor can move to where the jobs are. Until supply catches up, every rate environment — 3% or 8% — leaves the same families renting, and the median family still can’t afford the median home.