Rising Mortgage Rates Make Home Buying Harder — Smarter Moves for 2026

Home buying today has become a challenge as mortgage rates remain elevated, with prices skyrocketing since the pandemic and interest rates remaining high.

The latest data from Freddie Mac pegs the 30-year fixed-rate mortgage rate at 6.65 percent. Compare that to 2020 and 2021 levels, where this benchmark averaged between 2 and 3 percent for the most part. So, on interest rates alone, it has been two to three times more expensive to buy a home now.

Add that to the fact that household costs have surged due to the war in the Middle East, with tariffs and inflation making building and renovations more expensive.

Plus, conditions may worsen if tensions abroad escalate. An economist recently told Bloomberg that the 30-year mortgage rate could hit 7 percent soon.

Rent Instead

Simply put, as costs from groceries to household expenses and debt get more expensive, punting on becoming a homeowner in the short term might be the best option.

In fact, on starter homes alone, renting provides an $858 discount on average and is cheaper than owning in all 50 U.S. metros, according to research from Realtor.com. Keep in mind that the savings will depend on the area.

For example, the metro that posted the biggest home buying-to-renting premium was Austin-Round Rock-San Marcos, TX, at 139.1 percent. The lowest came out of the West in San Diego-Chula Vista-Carlsbad, CA (63.1 percent).

Regardless, you’re going to be paying quite the premium now – especially if mortgage rates keep rising.

Focus on Investments

While it’ll depend on how tight your financial situation is and the location, many may decide that now isn’t the right time to buy. If this is you – don’t get frustrated and instead put that extra money you would save renting to good use.

One thing you should consider is investing in your future. Maybe that means boosting your retirement allocations in 401 (k) or IRA accounts or another individual investment.

While investing will always carry a risk due to stock market volatility and economic uncertainty, index funds are one of the safest places you can put your money. These track the performance of the top benchmarks in the markets.

For example, the S&P 500 delivers on average a 10 percent return each year, according to a report from Fidelity. So starting with $1,000 would net you over $600 in profit in a normal stock market after five years.

Build Emergency Savings

This next strategy might not be the most exciting to plan for if you can’t afford to buy a home – but it’s without question necessary.

Emergency savings are meant to be there when needed, whether that’s a job loss, a big expense or a medical emergency. For example, car tires could run over a nail, causing a flat and costing hundreds of dollars to replace. Or worse yet, wear and tear forces you to replace all four tires.

The point is, these life events happen and preparation is key.

Look into starting up a high-yield savings account. These deliver far more returns on interest than a typical savings account. Right now, APY rates mostly range from 4 to 5 percent. Unlike with investments, as long as the bank is insured by the Federal Deposit Insurance Corporation, your savings (up to $250,000) are 100 percent protected, even if the institution fails.

And while minimum deposits may be required depending on the bank, APYs may go up even more due to the Federal Reserve hiking rates due to recent inflation pressures, increasing returns on high-yield accounts.

Part of the American dream for many is to become a homeowner. However, the now and the near future might not be the right time. One of the worst things is to buy a home you can’t afford and be forced to sell it in months at a loss.

Overall, Fidelity recommends starting with $1,000 in your emergency savings account and building that number up to cover between three and six months of essential expenses. As long as it’s FDIC insured, it’s a safe place to put your money.

Investments will carry risk over the short term, but history tells us that, even during the most bleak financial times such as the Great Depression, the stock market always recovers. Although that can take months or even years.

Regardless, it’s better to save or invest with money you can afford to put aside than buy a home that’ll put a major squeeze on your financial situation.