QUESTION
I read your article last week on selling mortgages when rates are high. At my company, we are stuck in a sales malaise because our borrowers are facing high housing prices. Newspapers are calling it the "affordability ceiling." Whatever you want to call it, our borrowers are holding back.
We can find workarounds for the rate, but there's nothing we can do about affordable housing.
In today's sales meeting, we passed your article around about the rate issue. Now, we could use some feedback on why it is so difficult to sell mortgages due to affordability issues. Please be straight with us. We need answers!
Why is affordability causing mortgage sales to slump?
SOLUTION
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ANSWER
Affordability
Let's start with an understanding of the word "affordability" in its common use. The current administration has been stating that it is a new media term invented by the political opposition. This misinformation has gone so far as to portray "affordability" as a "con job" or "hoax."[i]
The word "affordability" is not an invented media term. The Oxford English Dictionary shows this noun dates back more than a century to the 1910s. It is obviously derived from the verb "afford" and the suffix "-ability." While the word itself is old, its heavy saturation as a primary political buzzword surged significantly during recent election cycles to describe cost-of-living pressures.
For this article, I define "affordability" as the financial ability of people or households to pay for essential goods, services, or assets – such as housing, healthcare, or education – using their available income without going into severe debt or sacrificing other basic needs.
The way I see it, affordability relies on a balance between what things cost and how much money a person or family earns. It means a person has enough money left over for basic living needs after paying for a major necessity. From an underwriting perspective, using credit may make something temporarily accessible, but true long-term affordability depends on sustainable future income.
Affordability Ceiling
And, yes, there is an "affordability ceiling." This is an informal economic term that gained prominence in the early 2000s. I first saw it in market analyses involving real estate and also in financial journalism articles.
I would define the
“affordability ceiling” as the maximum price, rent, or cost that buyers and
renters can realistically afford based on their incomes. Once this limit is
reached, consumers can no longer absorb price hikes, forcing changes in market
behavior like downsizing or moving.
Now, let's go deeper into answering your question!
The Combination Punch
Home prices and mortgage rates are both staying high at the same time, and that combination is what's really squeezing buyers out of the market. That's quite a combination punch!
Unfortunately, there is a core math problem: The median single-family home hit an all-time high of $440,600 in July, up 1.8% from a year ago, with prices having risen for 36 straight months. Meanwhile, mortgage rates haven't come down much. By June, qualifying for a mortgage on the median-priced home required $109,152 in annual household income, up from $93,552 in January, a $15,600 jump in just five months.[ii] The fact is, wages simply haven't kept pace with that kind of increase.
Add to that the obstacle of rates rising alongside home prices. NAR calculates that in June, buyers needed to borrow at an effective rate of 6.57% (including points and fees), up from 6.19% five months earlier.[iii] Even modest rate upticks translate into real lost buying power. Indeed, one analysis found homebuyers lost about $11,000 in purchasing power between February and April alone, as rates moved from around 6% to 6.3%.[iv]
The result of this combo punch is a reduction in closings and an increase in contract fallouts. It takes a higher percentage of applications to land a single sale. The purchase pull-through rate recently dropped to 78.9%.[v] As to contract fallouts, roughly 14% of pending sales fell out of contract in July. This is happening because borrowers struggle to meet debt-to-income (DTI) requirements or back out due to payment shock.[vi]
The Lock-In Effect
In the article you cite, Selling Mortgages in a High Rate Environment,[vii] I discussed the “Rate Lock” effect and aspects of a “locking strategy.” I discuss several ways to enhance sales in a high rate environment.
But it is important to recognize that a huge share of existing homeowners have mortgages far below today's rates – something like 70% of mortgage holders had rates below 5% at the start of 2026. That discourages people from selling and buying again, since a homeowner with a 5% rate who sells and takes out a new $400,000 loan at 6.5% would see their monthly payment jump by about $381. Fewer sellers mean less inventory, which keeps prices elevated.
Perspective matters: despite sluggish sales, low inventory is keeping home prices high. The national median existing-home price reached $434,100, up 2% year over year.[viii]
And forget about refinances at this time, because rates are vastly higher than they were a few years ago, the refinance market has entirely dried up.
Thus, we wind up in a self-reinforcing cycle.
The Pull Back Effect
You use the word ”slump” to describe the “sales malaise” caused by “borrowers facing high housing prices.” This exactly captures the sentiment of borrower resistance!
Another way to think of the current economic condition is as a “Pull Back Effect,” a term that describes an economic condition typical of such resistance. Let’s put the Pull Back Effect into concrete terms. We see the effect in its direct hit to sales volume.
Existing home sales fell 1.7% in July even as prices kept rising. Signed contracts to buy existing homes dropped 5.4% in June, the steepest monthly decline of the year, and homebuilder confidence hasn't been this low for this long since 2012. On the new construction side, new home sales fell 7.3% in May to a seasonally adjusted annual rate of 580,000, which is down 6.8% from a year earlier.[ix] This resistance to buying is caused by difficult affordability conditions, high mortgage rates, inflation, and economic uncertainty.
To put this into perspective, total housing inventory fell 1.9% month over month in July to just 1.54 million unsold homes. The industry is operating at a near-historic slump of roughly 4.06 million annualized home sales.
And, first-time buyers historically make up 40% of the market. So they are now trapped between high prices and steep borrowing costs. Indeed, there were just 29% of transactions in July.
What Lies Ahead
I’m not in the forecasting business,[x] but it doesn’t take a genius to frame a gradual improvement as a slow, multi-year normalization rather than a quick turnaround. Top economists expect home prices to stay flat in 2026 and rise just 3% in 2027.[xi] Realtor.com® projects rates holding near 6.3% in 2026, with income growth helping bring the typical mortgage-payment share of income back under the 30% affordability threshold for the first time since 2022.[xii] And Redfin calls 2026 “The Great Housing Reset,” and it similarly expects wages to grow faster than home prices for a sustained stretch, something that hasn't happened since the aftermath of the financial crisis.[xiii]
National averages can mask local variation. Some overbuilt Sun Belt metros and areas with heavy new construction have already seen price softening or small declines in 2025–2026, even as the national median kept climbing. If you're looking at a specific metro area, the picture could look quite different from the national trend.
So, I think we
are in for a soft “reset,” that is, prices growing slower than income and rates
gradually easing, rather than a sharp price drop.
This article, Affordability and the Pull Back Effect, published on August 12, 2026, is authored by Jonathan Foxx, PhD, MBA, the Chairman & Managing Director of Lenders Compliance Group, founded in 2006, the first and only full-service mortgage risk management firm in the United States, specializing exclusively in residential mortgage compliance.
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[i] “Watch: Trump says the word ‘affordability” is a ‘con job’ by the Democrats,” PBS, December 2, 2025
[ii] Homebuyers lose ground as housing affordability slams shut, The Street, Damilola Esebame, July 19, 2026
[iii] As Summer Approaches, Buyers Still Feel Frozen Out of the Housing Market, Money, Leslie Cook, June 15, 2026
[iv] Idem
[v] Higher Rates Cool July Mortgage Locks While Non-QM Pushes Past 10%, Czarinna Andres, August 11, 2026
[vi] Buyers Backing Out: July Home Deal Cancellations Reach Eight-Year High, Mortgage Point, Eric C. Peck, August 21, 2025
[vii] Selling Mortgages in a High Rate Environment, Mortgage FAQs, Jonathan Foxx, August 6, 2026
[viii] United States Existing Home Sales, Trading Economics, July 2026
[ix] New Home Sales Drop Due to Affordability Concerns, Mortgage Point, Demetria C. Lester, June 26, 2026
[x] My view is not a forecast and should not be relied on for tax, accounting, regulatory, legal, insurance, or investment advice.
[xi] US housing market outlook: Will affordability pressures persist?, Global Research, J.P. Morgan, July 29, 2026
[xii] Realtor.com® 2026 Housing Forecast, Realtor.com, Danielle Hale, ETAL, December 2, 2025
[xiii] Redfin’s 2026 Predictions: Welcome to The Great Housing Reset, Redfin News, Chen Zhao and Daryl Fairweather, December 2, 2025
