How Mortgage Interest Rates Affect Home Affordability in Greater Boston (and What It Means for You)
Buying a home is all about affordability, and one of the biggest factors in affordability is your mortgage interest rate. In the past few years, we’ve seen mortgage rates swing from historic lows to multi-decade highs – and this has profoundly impacted Greater Boston’s housing market. In this blog post, Steve Novak of Douglas Elliman’s BMN Boston Team breaks down how these rate changes affect what you can afford, using real examples from Boston and its suburbs. We’ll also compare what happened in the frenzied low-rate market of 2020–2021 versus the cooler high-rate market of 2023–2025, and we’ll discuss what it all means for both buyers and sellers. (Spoiler: Whether you’re house-hunting in Somerville or selling in Wellesley, interest rates matter.)
Why Mortgage Rates Matter for Home Affordability
Mortgage rates directly affect your monthly payment and therefore how much home you can afford. Even a 1% difference in rate can significantly change your buying power. For example, a recent analysis shows that a 1% rise in mortgage rates translates to roughly a 10% drop in a buyer’s budget (associatedbank.com). In practical terms, a buyer who qualified for a $500,000 loan at a 3% rate would only qualify for around $350,000 at a 6% rate – a 30% reduction in purchasing power. That means if you could afford a $500K condo in Boston when rates were 3%, you’d afford roughly a $350K condo at today’s higher rates for the same monthly payment.
Why such a big impact? When rates are low, borrowing is cheaper, so buyers can stretch for higher-priced homes without increasing their monthly costs. This boosts demand and often leads to higher home prices. Conversely, when rates rise, monthly payments jump, many buyers’ budgets shrink, and some are priced out entirely – which tends to cool demand and put downward pressure on prices (or at least slow their growth). In short:
- Low Rates (e.g. ~3%) – Lower monthly payments ⇨ you can afford more house. More buyers enter the market, competition heats up, and prices often rise.
- High Rates (e.g. 6–7%) – Higher monthly payments ⇨ you can afford less house. Some buyers step back, demand eases, and the market cools (fewer bidding wars, longer time to sell, etc.).
Greater Boston’s market is a perfect case study in how this plays out. Let’s look at what happened in our region during the recent roller-coaster of rates.
The Boom: Greater Boston During Record-Low Rates (2020–2021)
In 2020–2021, mortgage interest rates hit historical lows – hovering around 2.7% to 3% for a 30-year fixed loan (bostonmagazine.com). These ultra-low rates were a game-changer for homebuyers’ budgets nationwide, and Boston was no exception. Buyers suddenly found they could afford much more house for the same monthly payment, and they rushed into the market. The result? Fierce competition and soaring prices across Boston and its suburbs.
Homes were flying off the market. In Greater Boston, the median days on market (DOM) for listings dropped to just 2–3 weeks in spring 2022 (median 15–18 days) – incredibly fast for a major metro. By comparison, in a more balanced market, homes might take a month or two to sell. During the 2021 buying frenzy, it was common in neighborhoods like Somerville and Jamaica Plain to see open houses packed with buyers and homes going under agreement in under a week. Our BMN Boston Team witnessed many well-priced listings attract multiple offers within days, often selling above asking price.
Bidding wars became the norm. Nationwide data show that about 64% of home offers faced bidding wars in 2021, and in 2022 it was still 55%. Coastal markets like Boston were even more competitive – in 2022, nearly 70% of Boston-area homes for sale received multiple offers. That means in places like Cambridge or Brookline, 7 out of 10 homes on the market had bidders dueling it out. With so many buyers chasing limited inventory, sellers held all the cards. Many Boston sellers in 2020–2021 saw dozens of showings in the first week and offers well over asking. (If you bought during that time, you likely remember writing a “love letter” to the seller or waiving contingencies just to compete!)
Prices surged to new highs. Greater Boston home prices jumped sharply amid the low-rate bonanza. For example, the Greater Boston Association of Realtors reported the median single-family home price rose about 11% from April 2020 ($760,000) to April 2021 ($845,000). That trend continued into 2022 – by September 2022, the region set a new record high median price. Low rates weren’t the only factor (we also had limited supply and high pandemic-driven demand), but they supercharged what buyers could pay. Even traditionally affordable suburbs saw big jumps: cities like Woburn and Malden experienced intense demand from first-time buyers taking advantage of 3% rates, while upscale towns like Wellesley and Newton saw wealthy buyers locking in cheap financing for million-dollar homes.
Sellers benefited tremendously. If you sold a home in this period, you likely enjoyed a quick sale at a premium price. Few sellers had to cut their price – in fact, in 2021–2022 price reductions were rare. Nationally, only around 9% of listings had price drops in 2021, but as the market topped out in 2022 that edged up a bit. Overall, during the low-rate era, Greater Boston sellers could expect multiple qualified buyers and offers often 5–15% over list price. The challenge for buyers was clear: you needed to act fast and put your best foot forward.
The Cool-Down: Higher Rates and the 2023–2025 Market Shift
Fast forward to today: mortgage rates have risen dramatically. As of May 2025, the average 30-year fixed rate is around 6.7% – more than double the pandemic low. In fact, rates above 6% are the highest we’ve seen since 2008. This spike in interest rates (driven by inflation and the Federal Reserve’s rate hikes) has cooled the market from its earlier frenzy.
Buyers have become more cautious. Higher rates squeezed budgets, so fewer people can afford Boston’s high home prices. Many first-time buyers had to put their search on pause or lower their price range. As a result, demand has pulled back, and we’ve seen noticeable changes in listing performance:
- Longer Days on Market: Homes in Greater Boston aren’t selling quite as instantly as before. The median days on market in the Boston metro crept up to about 25–30 days in 2023 (around 3–4 weeks), compared to barely 2 weeks at the height of the boom. For example, a single-family in Medford or Somerville that might have sold in 7-10 days in 2021 could take a month or more to find the right buyer in 2023. (That said, 25 days DOM is still relatively quick – a testament to Greater Boston’s strong demand – but it’s a shift toward a slightly slower pace.)
- Fewer Bidding Wars: Competition is softer. Only about 51.6% of home offers faced bidding wars in 2023, down from over 64% in 2021 (redfin.com). Many buyers no longer feel pressure to bid way over asking. As one agent noted, with high mortgage rates and less competition, “buyers didn’t feel as much pressure to compete”. In many markets, bidding wars became rare by late 2022 as rates hit 7%. In Greater Boston, we still see multiple offers on desirable properties (our team still encounters bidding wars, especially for turn-key homes in top neighborhoods), but it might be 2–3 offers instead of 10–15. Worcester actually led the nation in bidding wars in 2022 (70% of homes), but even there, buyers have grown more price-sensitive.
- More Price Reductions: Sellers have had to adjust expectations. In 2022 as rates climbed, an average of 14% of active listings nationally had price drops (a decades-high share). By October 2022, 22.6% of homes for sale had a price reduction, the highest level in many years. We experienced this locally in late 2022 and 2023 – if a home was priced too aggressively, buyers were quick to pass it over, and the seller often had to cut the price. For instance, in suburbs like Burlington or Dedham, we saw several listings in 2023 that went through one or two price adjustments before finding a buyer – something virtually unheard of during the 2021 frenzy. The flip side is that value-conscious buyers gained a bit of negotiating power that simply didn’t exist a couple of years ago.
- “Lock-In” Effect on Sellers: Interestingly, high rates not only affect buyers – they also affect sellers’ behavior. A lot of homeowners refinanced or bought when rates were 3%, and now over 80% of homeowners with mortgages have a rate under 6% (most under 5%). Many are reluctant to sell and give up that low rate, a phenomenon known as the rate lock-in effect. This has led to fewer new listings hitting the market in 2022–2024 (redfin.com), as some would-be sellers “stayed put” rather than trade their 3% mortgage for a 6.5% one. Greater Boston’s housing inventory has been historically low, which actually helped prop up prices even as demand softened. (Fewer sellers, fewer homes for buyers to choose from – keeping competition alive for the limited listings out there.) Recently, this lock-in effect has eased slightly as people adjust to the new normal, but it’s still a big factor keeping inventory tight (investors.redfin.cominvestors.redfin.com).
Sellers in 2023–2025 need a different strategy than during the boom. Today’s buyers are more discerning. They’re doing the math on higher monthly payments and often won’t stretch beyond their comfort zone. We’ve advised our seller clients to price their homes realistically and make sure the property shows its best (staging, minor upgrades, etc.) to win over the smaller buyer pool. The good news: because inventory is so low, well-priced homes still sell, and often fairly quickly. In many Boston neighborhoods, it’s still a seller’s market, just not the unparalleled seller’s market of two years ago. In fact, Massachusetts Realtors reported that closed sales started to rebound in early 2025 despite high rates (bostonagentmagazine.combostonagentmagazine.com), indicating that buyers and sellers are finding a new equilibrium. We’re seeing signs of a very active spring market in Boston as people come to terms with 6-7% rates as the “new normal.”
Local snapshot: In the city of Boston itself, the median price as of early 2025 was around $820,000 (up ~6% year-over-year), showing that prices haven’t crashed – they’re still inching up due to low supply. But buyers at that price point are now facing a ~$5,000 monthly principal & interest payment (assuming 20% down at ~6.5% rate) instead of ~$3,300 at 3%. That’s a huge difference. In high-end suburbs like Wellesley or Brookline, where single-family homes often exceed $1.5M, higher rates mean a much larger monthly outlay or the need for a bigger down payment. Some luxury sellers have had to settle for one strong offer rather than a bidding war. On the other hand, more affordable areas like Everett or West Roxbury have remained competitive since buyer demand outstrips the limited inventory, even with higher rates – especially among those eager to get into a home and refinance later if rates drop.
Current Mortgage Rates and 2025 Outlook – What’s Next?
Where are rates now? As of May 2025, 30-year mortgage rates average around 6.7% (Freddie Mac’s weekly survey) (fred.stlouisfed.org). This is down slightly from the peak levels above 7% seen in late 2022 and late 2023, but still high. For context, the pandemic low was 2.65% in January 2021 (investors.redfin.com). We’re a long way from that. In fact, 2024’s rates never went below ~6% at any point, and 2025 so far has hovered in the mid-6s.
Will rates go down later in 2025? Many experts predict some relief, but not a return to 3%. Here’s a quick rundown of forecasts for the rest of 2025:
- Fannie Mae: Projects rates around 6.2% by Q4 2025 (businessinsider.com). They see a modest decline if inflation continues to ease.
- Realtor.com: Similarly expects ~6.2% by end of 2025 (businessinsider.com), citing a “new normal” range of 6%–6.5%.
- Mortgage Bankers Association (MBA): Predicts rates around 6.7% by late 2025, only slightly below current levels (businessinsider.com).
- National Assoc. of REALTORS® (NAR): Forecasts near 6.4% for 2025, dipping to low 6s in 2026 businessinsider.com. NAR has noted that they expect rates to stabilize roughly in the 6% range, establishing a “new normal”nar.realtor rather than falling back to pandemic lows.
- Freddie Mac: In its Jan 2025 outlook, cautioned that rates may stay “higher for longer” this year businessinsider.com – meaning buyers shouldn’t bank on a dramatic drop in the next few months.
- Federal Reserve signals: While the Fed is no longer aggressively hiking rates, they have indicated they’ll keep rates elevated to ensure inflation is under control. So mortgage rates are likely to remain in the mid-to-high 6% range for at least the next couple of quarters, barring any major economic shifts.
In short, most experts anticipate mortgage rates in the mid-6s through late 2025, with perhaps a gentle downward trend. Even the most optimistic forecasts (Fannie Mae, Realtor.com) only see high-5% to low-6% rates if things go very well. And several forecasts say basically 6.5%± is here to stay for a while (businessinsider.com). This means buyers should plan their budgets with today’s rates in mind, rather than waiting for a dramatic drop that may not come soon. In fact, one industry saying is “Marry the house, date the rate,” meaning if you find a home you love, you can buy now and refinance later if rates improve.
On a positive note, even small dips in rates can spur activity. We saw this in March 2025, when rates eased from roughly 6.9% to 6.6% – that 20-30 basis point drop led to a 6.9% jump in pending home sales nationally, far more than expected (bostonagentmagazine.combostonagentmagazine.com). Buyers are acutely sensitive to rate changes (bostonagentmagazine.com). So if 2025 brings any surprise good news (say inflation falls faster and mortgage rates slip into the low 6’s or high 5’s), we could see another flurry of buyer demand in Greater Boston. Lawrence Yun, NAR’s chief economist, noted that a decline in rates can “fuel a sizable build-up of potential home buyers” returning to the market (bostonagentmagazine.com). More likely, though, the change will be gradual – giving both buyers and sellers time to adjust.
What Should Boston Buyers and Sellers Do Now?
For Buyers: It might feel counterintuitive, but there are opportunities in this higher-rate market. You face less competition than a couple years ago and you may not have to bid way over asking. Focus on what you can afford comfortably. Get pre-approved with a lender so you know your max price at current rates. Consider creative strategies: for instance, some of our clients are using buy-downs or adjustable-rate mortgages (ARMs) to secure a lower rate for the first several years (bostonmagazine.com. An ARM can make sense if you expect to refinance before the fixed period ends. Also, shop around with lenders – when rates are high, the spread between lenders can be significant, and a small rate reduction (or a lender credit) can save you thousands. Most importantly, focus on the long term: if you find a house in Beacon Hill or a condo in Somerville that suits your needs, remember that Boston real estate tends to appreciate over time. Even at 6-7% interest, homeownership can build your wealth if you plan to stay put for a while (redfin.com). You can always refinance if/when rates dip in the future.
For Sellers: Price your home for the market you’re in, not the market we had in 2021. Buyers have more constraints now. Work with your agent to analyze recent sales in your neighborhood under current conditions. Homes will sell – Greater Boston’s demand is still strong – but condition and pricing are key. Invest time in decluttering, staging, or small upgrades that can make your property stand out. Be patient if you don’t get multiple offers the first weekend. Maybe you’ll get one good offer instead of five – but that one offer is what you need to move on to your next home. Also, consider that many buyers stretching at 6-7% rates might ask for closing cost credits or other concessions; it’s wise to be a bit flexible during negotiations. Lastly, if you’re also planning to buy your next home, remember that timing the rate market perfectly is tough. We’ve seen some sellers succeed by selling now (while inventory is low – less competition from other sellers) and then renting for a year, hoping rates improve before they purchase their new home. That’s a personal decision, of course, and something we can discuss based on your circumstances.
For Homeowners on the Fence: If you’re one of those homeowners with an ultra-low rate, you might be hesitant to list. That’s completely understandable – why swap a 3% mortgage for a 6.5% one? The answer comes down to your life needs. If you need to upsize, downsize, or relocate, don’t let the golden handcuffs of a low rate paralyze you. Keep in mind, you likely have substantial equity gains from the past few years of price appreciation (Boston prices rose significantly during the pandemic boom). That equity can give you a larger down payment on your next home, offsetting some impact of the higher rate. And as NAR’s research suggests, if rates hover around 6%, millions of households that were priced out at 7% can afford homes again(nar.realtor) – meaning there are buyers out there for your property. The decision to sell should weigh factors like your growing family, job change, or retirement plans more heavily than your current mortgage rate. Real estate decisions should primarily serve your lifestyle and goals; finances are crucial, but they are one part of a bigger picture.
Bottom Line: Keep Perspective and Get Good Advice
Whether interest rates are high or low, Greater Boston real estate remains a solid long-term investment. Our region’s strong economy, universities, and limited land keep housing in demand. While 6-7% rates have introduced new challenges, they’ve also brought a healthier balance between buyers and sellers compared to the extreme frenzy of 2021. If you’re a buyer, you may find a bit more breathing room to house-hunt now, and if you’re financially prepared, you can make your move with less stress about bidding wars. If you’re a seller, you can still achieve an excellent price for your home – it just might take a little more strategy and patience.
Have questions about how all this affects your personal real estate plans? The BMN Boston Team is here to help you navigate this market. Our team has weathered every type of market, and we understand the nuances of buying and selling in Boston and its suburbs under various economic conditions. Reach out to us for a friendly chat or a free consultation – we’re happy to discuss interest rates, housing trends in your specific neighborhood (from South Boston condos to Lexington colonials), or strategies to meet your goals.
➡️ Contact Steve Novak and the BMN Boston Team at Douglas Elliman to get expert advice tailored to your situation. We can help you run the numbers, tour homes, or prepare your property for sale. Don’t let the headlines about rates get you down – with the right guidance, you can find opportunity in any market. Give us a call or send an email today, and let’s make a plan to achieve your real estate goals in Greater Boston!
Sources: Official market data and forecasts from Freddie Mac, NAR, MBA, and Realtor.com; Greater Boston market statistics from Massachusetts Association of Realtors and Redfin Research, among others. (For details, see cited references throughout this post.)
