How Much Do Mortgage Rates Impact Real Estate Demand?

Ien Araneta
Sep 20, 2023
5 min read

When people talk about housing, they often default to a simple cause-and-effect: rates go up, demand goes down; rates go down, demand goes up. True enough—but the size and timing of those swings matter more than most headlines admit. Using Greenville’s month-by-month pendings and closings—and the Federal Reserve’s weekly 30-year fixed averages as cited in the episode—this breakdown isolates what actually happened to buyer behavior as rates bounced from the 3s to the 2s, then rocketed through the 5s, 6s, and into the 7s.

Do Mortgage Rates Impact Real Estate Demand?

Do Mortgage Rates Impact Real Estate?

Short answer: a lot.

Longer answer: demand is far more sensitive to big, well-timed rate changes than to small ones—and it reacts differently in peak and off-peak seasons.

Below is a narrative of the last several years drawn straight from the episode’s data points and observations.

2019 set the baseline (rates in the high 3s)

Rates: High-3s (e.g., 3.73%–3.84% in June 2019; 3.49% in September, the pre-pandemic low).
Pendings & Solds (Greenville):
- June 2019: 1,288 pendings, ~+2% YoY; 1,399 solds, ~+2% YoY.
- September 2019: 1,193 pendings, +18% YoY; 1,296 solds, +22% YoY.

With rates dipping to the lowest since 2017, fall activity popped. It’s a first hint that even modest rate relief in a normal market can lift demand.

When rates plunged into the 2s (2020), demand surged

September 2020: 30-year rates in the high 2s for the first time ever.
- Pending jumped to 1,554 (+30% YoY).
- Sales rose to 1,584 (+22% YoY).

December 2020: rates hit the all-time bottom (mid-2s).
- Pending over 1,100 (+30% YoY)—huge for a slow month.
- Sold 1,442 (+20% YoY)

Takeaway: moving from the mid/high-3s to the high-2s correlated with a roughly 20–30% jump in buyer demand in Greenville. Even allowing for 2020’s unique “lockdown lag,” that’s a dramatic, repeatable lift.

March 2021: low-3s meet peak season—frenzy

Early 2021 rates drifted up a hair into the low-3s, still roughly ½ point below March 2020 levels. This time, those low rates collided with peak season:

Pendings: 1,678 (+34% YoY, the standout print).
Solds: 1,521 (+14% YoY)

Seasonality amplified the effect. Put simply, lower rates during spring are jet fuel for demand.

Why summer 2021 felt slower despite low rates

After spring’s spike, summer 2021 looked softer in year-over-year terms. The episode pins that on two things:

Vanishing inventory: months of supply dipped to historic lows; there just weren’t enough homes to transact.
Distorted comps: Six “lost weeks” from 2020 lockdowns pushed demand into late 2020, skewing comparisons.

Key nuance: pendings cooled, but sales held up because buyers rarely walked away in that scarce-inventory environment. When a buyer finally won a contract, they clung to it.

Fall 2021: proof it’s not always one-to-one

Despite rates edging a bit higher (still low-3s), October and November 2021 were robust:

October pendings: +12% YoY (1,544).
November pendings: +12% YoY (1,355).
November sales: +17% YoY (1,461).

Why? Many buyers who lost out in spring re-entered in the fall, when competition eased. Lesson: Small rate changes (≈½ point) don’t always overpower market timing and buyer psychology.

2022: the climb—mid-3s to 5s to 7s

February 2022 pushed rates above pre-pandemic territory (3.92%), and the stair-step continued:

March 2022 (mid/high-3s to mid-4s): pendings 1,570 (−6% YoY); solds 1,544 (+1% YoY).
May 2022 (low-5s): pendings 1,482 (−12% YoY); solds 1,578 (+4% YoY).
June/July 2022 (low/high-5s): pendings ~1,388–1,397 (−8% YoY both months); solds 1,704 (−4% YoY) and 1,407 (−10% YoY).

Pendings steadily drifted back toward 2019-like levels—classic mean reversion as borrowing costs normalized.

Late 2022: the real rate shock (6s → 7s)

When rates hopscotched into the high 6s/low 7s, the demand hit was finally loud:

September 2022 (high-5s/low-6s): pendings 1,263 (−14% YoY); solds 1,468 (−10% YoY).
October 2022 (high-6s/low-7s): pendings 1,167 (−25% YoY); solds 1,232 (−13% YoY).
November 2022 (high-6s/low-7s): pendings 984 (−28% YoY); solds 1,200 (−18% YoY).
December 2022 (mid/high-6s): pendings 810 (−25% YoY); solds 1,228 (−24% YoY).

That’s the inflection: pushing into the 7s, sliced pendings roughly 25–30% year over year.

Five conclusions the Greenville data support

Demand reacts more to big drops than to big hikes. The single largest swing in the episode is +34% pendings at low-3% rates during peak season. The biggest downside print, −28% pendings, came with rates in the 7s. Both are huge, but the upside sensitivity when rates fell was even stronger.
Half-point wiggles don’t move the needle; full-point moves do. Shifts of ~0.50% often got overshadowed by seasonality and supply. Shifts of ~1.0% correlated with ~5–10% changes in demand (direction depending on the move).
Timing matters. Low rates during spring inflate demand disproportionately (see March 2021). Rate hikes during Q4 compress demand the fastest (see late 2022).
Inventory conditions shape fallout. In 2021’s starved market, few contracts fell out, keeping solds elevated even as pendings cooled. In today’s more cautious climate, fallout has drifted toward normal or even higher—buyers feel they have options.
There are reasonable “lines in the sand.”
- Above 8%: expect another 5–10% demand drop; extended weakness could tilt year-over-year prices negative.
- Low-6s: expect 5–10% demand lift; price growth likely turns meaningfully positive again.
- ~5.25%: the episode frames this as the “bonkers” threshold—below it, demand could run 15–20% stronger than today, with the potential for double-digit appreciation if sustained (not a near-term expectation).

What this means for buyers and sellers right now

For buyers

If rates hover in the low/mid-7s, demand likely stays generally where it is—measured and selective. That favors thoughtful negotiations, especially on homes that missed the summer window.
If rates dip to the low 6s, expect noticeably more competition. Clean terms and readiness matter again.
If rates break 5.25% (not the near-term base case in the episode), expect a feeding frenzy reminiscent of 2021.

For sellers

Today’s market rewards precision and condition more than momentum. Pricing near the mark and presenting well can still yield strong results.
If rates push above 8%, expect longer DOM and stiffer resistance; strategy will hinge on concessions and price discipline.
If rates slide into the 6s, expect a broader buyer pool and better throughput—but remember: the best outcomes still come from being the clearest value in your micro-market, not the highest price.

Scenario guide (straight from the episode’s analysis)

Rates stay ~7.0–7.5%: Demand stays similar; no fresh macro shock assumed.
Rates >8%: Demand −5–10%; risk of more frequent negative YoY price prints.
Rates fall to low-6s: Demand +5–10%; YoY prices likely firm; pace quickens.
Rates return to ~5.25%: Demand +15–20%; potential for double-digit YoY price gains if sustained and not in the off-season.

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Bottom Line

Mortgage rates are the steering wheel of real estate demand—but the degree of the turn depends on the size of the rate move and when it happens. Greenville’s recent history shows:

Full-point moves in rates tend to shift demand 5–10%;
Half-point moves rarely overpower seasonality.
The market is more sensitive to drops than to hikes.
Low-6s wake buyers up; 7s keep them choosy; 5.25% lights the fuse.

For anyone planning a move, the smarter play isn’t guessing the next weekly print—it’s aligning strategy with these sensitivities. When rates flirt with a line in the sand, demand doesn’t politely knock; it kicks the door.

Ien Araneta

Journal & Podcast Editor | Selling Greenville