Market Demand Destruction from Elevated Mortgage Rates

Definition

High mortgage rates are fundamentally suppressing residential real estate demand, creating a 'ceiling' on broker transaction volumes. The Federal Reserve raised benchmark rates 11 times between 2022-2023, and although the Fed cut rates in late 2024 and early 2025, mortgage rates remain elevated. Industry forecasts indicate mortgage rates of 4.0%+ will persist (versus historical 3.0-4.0% range), keeping millions of potential buyers sidelined. Approximately 7.9 million US families are income-qualified to purchase but remain in the market due to affordability constraints. Additionally, the US faces a 4.5 million-unit housing shortage (as of 2022), limiting inventory and incentivizing sellers to price aggressively, further reducing buyer pool. The combined effect: transaction volume declined 3% year-over-year for major brokerages in 2024, with further declines expected. For small/mid-sized brokers, this manifests as: fewer listings, fewer buyer transactions, compressed transaction volume, and inability to scale. Unlike operational problems (hiring, technology), this is a market-wide structural headwind beyond individual broker control but critical to understand for business planning.

Why This Matters

Market-adapted business models, expanded service offerings (property management, rental markets), niche positioning, lead nurturing for future buyers, alternative revenue streams

Affected Stakeholders

Broker-Owner, Managing Broker

Related Business Risks