The annual rate of home sales in the United States recently fell to 3.98 million, its lowest level since June 2025. The stagnant housing market may be because of the country’s elevated interest rates, with the average 30-year fixed mortgage rate now past 7 percent. That makes it more than just a housing story, because the interest rate is partly determined by competition for capital from the booming artificial intelligence industry.

What are the dynamics in play in the U.S. housing market right now? Are high U.S. interest rates mostly due to broad economic growth? What role is the AI industry playing in the frozen housing market?

The annual rate of home sales in the United States recently fell to 3.98 million, its lowest level since June 2025. The stagnant housing market may be because of the country’s elevated interest rates, with the average 30-year fixed mortgage rate now past 7 percent. That makes it more than just a housing story, because the interest rate is partly determined by competition for capital from the booming artificial intelligence industry.

What are the dynamics in play in the U.S. housing market right now? Are high U.S. interest rates mostly due to broad economic growth? What role is the AI industry playing in the frozen housing market?

Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.

Cameron Abadi: What exactly is going on in the housing market? How would you describe the dynamics at play right now?

Adam Tooze: The term that seems to be commonly used by analysts is “freezing up” or “frozen.” The mortgage rate is over 7 percent, which is lower than the 7.7 percent rate in 2023 when inflation spiked. But the crucial point is that as recently as 2022, you could get a mortgage for as little as 3 percent; during COVID, it fell even lower than that.

An increase in interest rates from 3 percent to over 7 percent is a huge financing shock to what is the largest single asset class in the world. By comparison, U.S. Treasurys is a $40 trillion asset pool; American domestic real estate, so housing, is $55 trillion, of which owner-occupied is $48.7 trillion. This is flat-out the single largest element of the U.S. economy. If you add in commercial real estate, it’s $26 trillion.

For the financing costs on a market that large to shift as much as this is a story that ought to rank alongside the Treasurys in terms of its macroeconomic implications. Because it impacts households and therefore impacts consumption, it in some senses is a more direct impact on people’s lives.

Another way of describing this is that this is another aspect of the cost-of-living crisis and conversation going on in American society, as it has in so many others in recent years. It’s also a K-shaped story about the division within American society at its most elemental level—namely, what do you pay and how do you finance your home? American mortgages are very peculiar beasts by global standards. They offer fixed rates for very long periods of time but with the one-sided advantage to the borrower that they can refinance whenever they like, essentially, for relatively modest cost and it’s a normal thing to do.

So what happens is that when interest rates fall, people who are well-organized financially refinance their mortgages.........

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