Cutting Interest Rates Won’t Fix the Housing Affordability Crisis, Here's Why

Written by:

Steve Marcinuk

Date:

02 Jan 2026

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Jonathan Miller, President and CEO of Miller Samuel Inc., argues that the Federal Reserve’s pandemic-era policy of prolonged low interest rates created a housing inventory crisis that persists even after mortgage rates have more than doubled. He contends that lower rates will not restore affordability, challenging the prevailing industry belief that rate cuts are the key to unlocking the housing market.

“When interest rates are too low for too long, housing becomes much more expensive, which seems counterintuitive, but not when you think of the creation of inventory as a slow process that can be wiped out very quickly if rates are extremely low for a sustained period of time,” Miller says. His firm produces the Douglas Elliman Report series, which is used by the Federal Reserve and other government agencies for market analysis.

Miller’s view runs counter to the widespread expectation that cutting rates will make homes more affordable. Instead, he points to the Federal Reserve’s extended period of low rates during the pandemic as the root cause of a lasting supply shortage. This shortage, he says, is keeping prices high even as mortgage rates have surged since 2021.

Inventory Wiped Out by Prolonged Low Rates

Miller explains that housing inventory is slow to build but can be depleted rapidly when demand surges during periods of cheap borrowing. He believes the Fed’s low-rate policy during the pandemic led to a dramatic depletion of available homes.

“We just had the steepest ascent of mortgage rates in history, from 2022 to 2024, and prices didn’t really correct,” Miller says. “You would think that prices would fall sharply because mortgage rates are more than double what they were just in 2021, and that simply isn’t the case.”

He attributes this to persistently low inventory. In suburban markets around New York City, Miller notes that bidding wars, in which properties sell above the asking price, still account for 25 to 35% of all transactions. “That’s still insanely high and still shows you how tight the market is,” he says.

At the height of the pandemic, 50 to 60% of transactions in these markets involved bidding wars. While that number has dropped, the current level remains far above historical norms, highlighting ongoing supply constraints.

Why “Build More Housing” Isn’t Enough

A standard policy response to housing shortages is to push for more new construction. Miller argues this overlooks the reality that new homes make up only a fraction of the total housing stock.

“In any given period of time, new home construction is 10 to 15% of total inventory,” Miller says. “Resales or existing inventory is the dominant, and that’s the problem.”

He points out that most new construction targets the mid- to high-end market. “We’re really not building new housing that we desperately need, which is more affordable housing,” he says. As a result, existing inventory remains low, especially in the Northeast and Midwest.

Miller describes a divided national landscape: inventory is plentiful in Sun Belt states like Texas and Florida, balanced on the West Coast, but remains scarce in the Northeast and Midwest. This variation means the inventory crisis affects regions differently, with some markets feeling the pinch far more than others.

Affluent Buyers Gain the Upper Hand

Miller’s analysis highlights that the affordability crisis is not distributed evenly. He notes that higher-priced segments of the market remain more active, as affluent buyers have access to better financing options.

“The more affluent you are, the more likely you have a wealth manager or a relationship manager in the bank, and you’re not paying full retail,” Miller says. “You’re not paying 6.4% on a 30-year fixed. You’re paying something in the low fives because of alternative financing products that are not necessarily available to the masses.”

This advantage for wealthier buyers helps explain why single-family homes, which tend to be more expensive than condos, are outperforming in both price appreciation and sales volume. “If you just sort of generalize and say, well, single families are more expensive than condos on average, then it’s reasonable to understand why single families are outperforming condos,” he says.

Within the condo market, Miller says the high-end segment is faring better than lower-priced units. This pattern, observed across multiple markets his firm tracks, underscores the structural advantage enjoyed by buyers with greater access to capital.

Distorted Market Conditions Persist

Five years after the pandemic began, Miller says the housing market remains distorted by the lingering effects of the low-rate era. He expects this situation to continue for at least the next two years, challenging the industry’s optimism about imminent relief.

“Most analysts think that rates are going to continue to edge lower. They probably won’t crack below 6% until early 2027,” Miller says. “I hope they don’t, because that’ll just create more distortion in the future.”

He warns that continued volatility in rates discourages potential buyers. “The more volatility you have, the more you scare people from dipping a toe into the purchase market,” Miller argues that the industry’s fixation on rate cuts overlooks the risk of repeating the same mistakes that led to the current shortage.

Miller Samuel’s Neutral Market Reporting

Miller attributes his firm’s influence to its commitment to unbiased analysis. “We’re neutral market observers. We don’t really care what your problems are,” he says. “We really just want to provide a neutral benchmark for users of our report information to make informed decisions.”

He recalls realizing the impact of his research when the Federal Reserve contacted him about missing data updates. Today, the Douglas Elliman Report series covers markets nationwide and is used by consumers, businesses, government agencies, and academic institutions.

Whether Miller’s analysis of the relationship between rates and inventory gains wider acceptance may shape how policymakers address housing affordability in the years ahead. For now, he maintains that simply lowering rates will not solve the affordability crisis and may further strain the already limited housing supply.