Prologue Isn’t Prophecy: Rochester’s Housing Market in 2026
The valet service had departed, as had the carolers. The bartenders, caterers, and coat check had successfully accomplished what we had hired them to do. It was mid-December 2018 and Duffy and I were left alone, enjoying a nightcap as the last log was consumed by the Yuletide flame. We had just hosted one hundred and twenty-five of our closest friends and, once again, the evening was a success. Whether it was a Memorial Day barbecue for dozens or an intimate dinner party, we had unlocked the secrets to entertaining and could throw together a memorable evening on short notice with little effort. So, when Duffy suggested that we open a restaurant, it seemed both obvious and logical that it would be outrageously successful. Eight months later we launched 80W, a nod to the model that ensured our inevitable triumph- our residence on Westminster Road.
Less than two years later, we barely managed to sell the furnace that had been consuming all of our available cash. Our mistake wasn’t optimism. It was assuming that what had always worked would keep working. It’s a common mistake, and it’s made in places far more consequential than a restaurant in downtown Rochester.
When the Market Breaks the Pattern
In the world of economics, there is a well-established relationship: signs of a weakening economy generally push interest rates lower. This past Friday, it was reported that a mere 29,000 jobs were created in the month of September. Moreover, growth for the preceding three months had been revised downward. As anticipated, shortly after the opening of the business day, interest rates fell. Come 4:00, the market had reversed course and 30-year mortgage rates had actually risen to 7.57%. Wall Street’s conviction that it knew how the market would respond had been shattered.
In The Tempest, the villainous Antonio declares that “what’s past is prologue.” On Friday, his reasoning didn’t hold.
Occasionally, during times of uncertainty, the stage that is the world financial market makes way for a new set of cast members: bond vigilantes. They view global economics through a larger lens and currently see a constellation of risks threatening the American economy:
- Persistent inflation fueled by the war in Iran, the closure of the Strait of Hormuz, and the rising cost of oil
- $40 trillion of national debt, which requires more than $1 trillion of interest payments annually- a sum larger than the budget of the US military
- Competition for enormous capital emanating largely from the infrastructure needs of the AI industry
When bond traders see worrisome economic signals, they demand a higher interest rate to lend money to the US government. This helps to explain why yields have recently risen to levels last seen in 2002.
What Higher Rates Mean for Rochester Real Estate
So, how does all of this relate to and impact residential real estate?
Essentially, mortgage rates track the yield of the 10-Year Treasury. As bond yields have risen, the cost of financing a house has done the same, escalating from 6% in February to 7.57% today.
In practical terms, the median cost of a home in Monroe County is $305,000. The principal and interest payment on that house in February would have been $1,829. Today, it has increased to $2,147, a difference of $319 per month or $3,823 per year.
Nothing about the house has changed. Instead, the buyer’s purchasing power has.
Here’s where things become very interesting:
It would be easy to assume that such a large increase in mortgage rates and payments would lead to falling real estate valuations. Two statistics from the past twelve months would support that conclusion:
- Closings are down 18%
- The number of expired listings has increased by 16%.
However,
- The median sales price has risen 11%
- Of the homes that did sell, 83% of them transacted above list price
In other words, the bifurcation of the market that we started to witness a few months ago has actually become more pronounced. Affordability is impacting the number of transactions. However, if a property is located in a great school district, if it’s priced correctly, and it’s maintained and staged beautifully, there’s a good chance that it will sell over asking. In a world in which so much of one’s fate is largely determined by geopolitical activity and economic forces outside of one’s control, it’s comforting to know that, in this one arena, one can materially improve one’s odds for a successful outcome.
Is Waiting Until Spring a Safe Assumption?
There’s a third group at risk of trusting the past: homeowners. Many sellers assume that spring will bring a better market, because it usually has. So they’re kicking the can down the road. But what evidence do we actually have that conditions will be better in April?
To underscore my concern, I’ve been asking clients what, specifically, will cause mortgage rates to fall:
- When will the war in Iran conclude?
- When will the Strait of Hormuz reopen?
- When will the rate of inflation begin to subside?
- What actions will begin to erode the enormity of our national debt?
- When will the ravenous appetite for AI infrastructure financing abate?
Rather than subjecting themselves to the whims of an uncertain future, sellers may be better off preparing their home for market and immediately listing it for sale. If it sells, we’ll pop a bottle of Moët. If not, we’ll simply relist in the spring, reflective of what we learned in the fall, and hope for better market conditions.
Which may be what Antonio meant all along. He wasn’t claiming the past predicts the future. He was saying it sets the stage, and the next move is ours. Duffy and I trusted the past and spent nearly two years shoveling cash into a furnace. Wall Street trusted the past and was blindsided by a jobs report. Homeowners who trust the past may wait for a spring that doesn’t arrive as promised. The past is a reliable guide to what we can control, not a forecast of what we can’t.
Uncertainty prevents us from knowing how the play will end; agency allows us to influence its final act.