Listing Prices Are Falling, but Resurgent Mortgage Rates Spook Buyers

The spring housing market is limping across the finish line this Memorial Day weekend, as surging mortgage rates send buyers into retreat.

Still, there is good news for homebuyers, as prices continue to soften. For the week ending May 16, the national median listing price was down 2.3% compared with a year earlier, according to the Realtor.com® economic research team’s latest weekly housing update.

It marks the 18th straight week of outright year-over-year price declines. And list prices are falling on a square-foot basis as well, dropping 1.6% this week from last year, in a sign that underlying home values are retreating.

“Price reductions are falling year over year, suggesting that this listing price softness is more of an indication of adjusting seller expectations than a sign of market weakness,” says Realtor.com senior economist Jake Krimmel. “Put differently, sellers seem to be listing at a lower price to begin with, rather than listing high and reducing the price later.”

Homebuyers also continue to see more choices, with total active inventory up 2.2% this week compared with last year. But rising mortgage rates may be offsetting the affordability gains of falling prices, and some buyers are balking.

This week, the average 30-year fixed mortgage rate jumped to 6.51%, up 15 basis points from early February, according to Freddie Mac.

Mortgage rates are now up half a percentage point from the beginning of March, as the U.S.-Israeli war with Iran sent global oil prices soaring, sparking a bond sell-off that rippled through mortgage markets.

The upward surge in rates has added about $230 to the monthly mortgage payment on the median priced home, assuming a 10% down payment. Affordability-strapped buyers are taking notice.

Mortgage applications to buy a home fell 4% for the week ending May 15 compared with a week prior after seasonal adjustment, according to the Mortgage Bankers Association. Still, purchase applications were up 8% from last year, when mortgage rates were even higher.

“Ongoing concerns around inflation from higher fuel costs, combined with rising concerns over global public debt, pushed Treasury yields higher in the U.S. and abroad last week,” says Joel Kan, MBA’s deputy chief economist. “This resulted in higher mortgage rates across the board.”

Homebuyers increasingly turn to risky adjustable-rate loans

Homebuyers who remain in the hunt despite higher rates are increasingly turning to creative, and potentially risky, alternatives to secure a lower rate.

MBA data shows that applications are surging for adjustable-rate mortgages, or ARM loans, which offer lower interest rates but are considered riskier because they have a shorter fixed-rate term and then may adjust higher.

“Almost 10% of applications were for ARM loans, the highest share since October 2025, as borrowers sought loan types with lower rates, given that the ARM rate was 80 basis points below the 30-year fixed rate,” says Kan.

The average contract interest rate for 5/1 ARMs is currently around 5.7%, according to MBA, well below the 6.56% rate the group reports for standard 30-year fixed rate loans.

The lower rates on ARM loans can bring homeownership into reach for buyers who are on the bubble. But they essentially represent a gamble that mortgage rates will decline in the future, an outcome that is not guaranteed.

“If market rates are lower when the ARM resets, that’s a win for the borrower, but if market rates are higher, that will raise monthly payments and borrowing costs,” says Realtor.com Chief Economist Danielle Hale. “Whether it will make sense to take out an ARM depends on how much of an upfront discount you receive for taking on that risk, and how long you think you’ll stay in your next home.”

Hale notes that today’s ARMs often have more consumer protections and upfront disclosures than they did decades ago. For example, a borrower will see limitations on how much a rate can reset each period and overall.

“But the bottom line remains that a borrower taking on an ARM faces interest rate risk that a borrower taking on a fixed-rate mortgage does not,” she says.