The Lasting Effects of the Low-Rate Era on Today’s Housing Market

By Brianna Piacitelli 

Vice President of Investor Relations, Hill Street Realty 

Many of the challenges facing today’s housing market can be traced back to policy decisions made in the aftermath of the Global Financial Crisis (GFC). While those policies may have helped stabilize the economy, they also set in motion long-term effects that continue to shape both the single-family and multifamily housing markets today. 

One of the most significant impacts came from the extended low-interest-rate period that followed the GFC, particularly during the COVID-19 era between 2020 and 2022. During that time, U.S. home prices rose sharply nationwide, increasing by more than 40% in just two years. At the same time, millions of existing homeowners refinanced into long-term, fixed-rate mortgages at historically low interest rates, often between 3% and 4%. 

Those same homeowners today face a very different reality. While they may have purchased or refinanced at much lower prices and rates, buying that same home today would require paying both a higher price and a significantly higher mortgage rate, often doubling or even tripling monthly mortgage payments. For many households, the monthly payment on their current home would be unaffordable under today’s conditions, leaving little incentive to sell and prompting homeowners to stay put. 

This dynamic has created what is commonly referred to as a “lock-in effect.” As a result, housing supply has remained unusually tight, keeping home prices elevated and pushing affordability to its lowest levels in decades. 

At the same time, the low-rate environment that supported homeownership also fueled a surge in apartment development. Low financing costs made new construction attractive, and multifamily development rose to cyclical highs. In 2024, the number of apartment units delivered exceeded any single year since the 1970s. Many of these properties began their development phase in 2020 and 2021. 

Between 2023 and 2025, this wave of new supply put downward pressure on rents, while the gap between the cost to rent and the cost to own widened dramatically relative to historical norms. 

As 2026 begins, this phase has started to shift. New apartment construction has slowed meaningfully in response to higher interest rates and a weakened rental market. In many markets, new apartment construction no longer makes financial sense under current conditions, and new construction starts have fallen sharply since 2023. 

Over time, as excess supply is absorbed and rents begin to rise again, the gap between renting and owning is likely to narrow. In parallel, life events such as job changes, family needs, or relocations will gradually force movement within the housing market, slowly easing the lock-in effect created by low mortgage rates. 

These adjustments will take time. But during this period, existing apartment owners are positioned to benefit from strong underlying demand, limited new supply, and a housing market where renting remains the more attainable option for many households. 

Today’s housing market reflects the unintended consequences of government policies implemented years ago. While those decisions helped address immediate problems, they also created new constraints that will shape affordability, mobility, and housing choices for years to come.