5 Cities Where Falling Mortgage Rates Have the Biggest Impact on the Housing Market
After soaring in the pandemic, housing markets still haven't normalized. A surplus of new development post-pandemic distorted many markets and caused them to fall in value in 2024-25, and continued high mortgage rates over 6% have kept many would-be sellers "locked into" their current homes.
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But what would happen if mortgage rates keep falling? Which cities would see the greatest impact on housing?
Washington, D.C.
The nation's capital leads the country in the percentage of homes bought with mortgages. Nearly three-quarters (73.6%) of primary residences have a mortgage on them, per Realtor.com, compared to the national average of 59.7%.
It doesn't help that housing costs so much in and around "The District." Zillow pegs the average home price at $574,016, nearly 60% higher than the national average of $360,591.
Lower mortgage rates would open mortgage eligibility for tens of thousands more prospective buyers. Which would, of course, impact home prices.
Denver
With 72.9% of homes carrying mortgages in Denver, it ranks second in the country for mortgaged homes. Like D.C., the combination of high mortgage rates and high home values have pushed prices lower in Denver over the last year.
But Denver shares something else with D.C. as well: A relatively young population with high and growing incomes.
"These areas are highly responsive to declining rates because of strong income growth and recent price alignment," said Cody Schuiteboer, CEO of mortgage lender Best Interest Financial. "Lower rates allow families who were previously priced out to qualify for a mortgage and boost demand in the market."
Minneapolis
While more affordable than many major cities, Minneapolis still has a high percentage (67.7%) of mortgaged homes.
Data from the National Association of Realtors (NAR) shows that a whopping 81,112 new homebuyers would become eligible to buy a home if rates fell below 6%. The prospect excites local investor Marisa Simonetti of Sell House Fast MN. "We expect decreasing interest rates to have a huge positive impact on Minneapolis homeowners and demand," she said.
Raleigh, North Carolina
Raleigh ranks fourth in the nation for the percentage of mortgaged homes, at 70.7%. That makes it sensitive to rate movements, and like Denver and D.C., helps explain why home prices have foundered in the last year.
The NAR report projects that roughly 27,000 new homeowners would become eligible to buy if rates reach 6%, which would tip the housing market and drive demand.
San Diego
Despite its famously relaxed vibe, there's nothing mellow about home prices in San Diego. Zillow reports the average home price at $989,768, although like many of the cities above, prices have dropped over the past year due to high rates and low affordability.
At current rates, the median home price's mortgage payment eats up 77.1% of the median income in San Diego according to Realtor.com. But as rates drop and affordability improves, more buyers would consider entering the market.
San Diego also ranks fifth in the nation for the percentage of mortgaged homes, at 70%.
Keep an eye on these cities as interest rates change, as all of them remain more sensitive than most to falling rates.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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