By Mike Bodeen · 10 August 2026
Residential Real Estate May Never Be the Same Part 2
This last week, Safeway had a meat sale that included petite sirloin steaks and many of their roasts – for $6.99 per pound. One year ago, that same sale was half that amount. Currently, these cuts of meat are trading closer to $10.00 per pound with no sale price.
Heading over to the store, I said to myself, “Self, this is a good deal. I will pick up several packages of the petite sirloin steaks.” And so I did.
The same can be said for gas prices and a number of other items. We get used to higher prices, and in no time, the higher prices are the new normal.
Residential real estate can work the same way, including higher mortgage rates. For the past 3+ years, residential sales have remained low due to higher mortgage rates and higher prices that persist. (See chart below.)
Many real estate pundits (and politicians) have been predicting for years now that the cure for our housing affordability problem is for mortgage rates to drop back down. We have contended in this newsletter that it won’t happen. And if it did, it would actually add to the affordability problem by increasing sales, lowering supply, and triggering another vast round of price increases. We can’t have it both ways.
The current Phoenix Metro market may be the best we’ve seen for both buyers and sellers. The historical average for a 30-year fixed mortgage rate since 1971 is 7.7% (see chart below), and we’re currently a full point below that at 6.7%
Well, you ask, what about higher home prices? A fair question. Prices may not be coming down outright, but they may in effect be lowering through that same tool of inflation. Adjusted for inflation, the value of a home three years ago compared to now has declined 5% to 10%, per Redfin. And the good news for homeowners with a fixed-rate mortgage is that they are paying back that mortgage with inflated dollars.
So, wrapping this up: ultra-low 3% mortgages are not going to happen, and they shouldn’t. Buyers should realize that current rates, though higher than they want, are pretty good historically. Combined with home prices that have been flat, that may make now the most affordable time to buy — especially if rates do drop, even down to 5%, which would be bargain-basement mortgage pricing.
So are we in a new normal? I think so, but it’s not a bad normal. It just is what it is.