Rachel Bennett has spent the past couple of years searching for a moderately priced home in Cedar Rapids.

She has also been tracking mortgage rates, watching them bounce between just under 6% to just over 7%. “The interest rates where they are now makes it hard for a first-time buyer like myself to afford to buy a house,” said Bennett, 60, who has been renting since a divorce a few years ago. “A couple years ago they were a lot lower.”

Bennett, who worked with Neighborhood Finance Corp. to secure financing, recently made an offer that was accepted on a $160,000 home, locking in a rate in the mid-6% range. She closes on the purchase of the home later in May.

Bennett had to lower the price range of homes she was looking at as interest rates increased, she said.

“Renting was getting more and more expensive,” said Bennett, a drug abuse counselor at St. Luke’s Hospital in Cedar Rapids. “I wanted to buy a house that I could build up equity for myself and not someone else.

“There were only certain houses I could afford. Some needed a lot of fixing up; others weren’t in neighborhoods where I felt safe,” she said. “What the interest rate is, makes a big difference in what your house payment will be.”

Mortgage rates have eased since 2024, but still are stubbornly elevated compared with the ultra-low rates many buyers grew accustomed to before and during the pandemic. That disconnect is keeping affordability strained, particularly for first-time buyers, as higher borrowing costs continue to limit purchasing power.

Last week, the Federal Reserve left federal funds rates untouched, a move that likely means home mortgage rates will continue to hover in the mid-6% range for the foreseeable future.

“A 30-year, fixed-rate mortgage of 6% to 6.5% is probably where they need to live,” said Todd Smith, senior director, consumer finance for Bank Iowa. “It’s a rate that’s still below the historical average. If you’ve been in this business long enough, you’ve seen rates a lot higher. So, a 6% rate is still a pretty good rate.”

Buyers leaving sidelines

Over the past 55 years, the median interest rate for a 30-year home mortgage is 7.23%, according to a review of data from Freddie Mac, which began tracking the rates in 1971. Since 2020, the median rate has been 6.21%, reflecting a sharp rise in rates that began in 2022 when the Fed began aggressively raising its benchmark rate to combat high, persistent inflation.

For a while, potential home buyers remained on the sidelines with the hope that rates would fall to pre-pandemic levels that were well below 6%. In recent weeks, though, the number of homes sold in the Greater Des Moines area and Iowa have increased, a sign buyers are coming to terms with rates that might not drop much further.

In March, 2,735 single-family homes were sold in Iowa, up 33% from the 2,049 in February and 4.6% more than what was sold in March 2025. The Des Moines area saw similar growth, with 1,063 homes sold in March, up 42% from February and 11% from a year ago.

“I think people have gotten used to the 6% range,” said Rachel Flint, a senior vice president at Hubbell Realty Co. “We’re seeing an active market right now. Home sales are strong, both in resale and new construction, which is a good thing.”

Stephanie Murphy, executive director of Neighborhood Finance Corp., said some clients had been waiting for rates for home mortgages to decrease, but now realize “this is the reality.”

“We can’t control the rates, but we can do some things so that [clients] aren’t having to borrow as much at the current rate,” Murphy said. The nonprofit mortgage and home repair lender has increased the amounts borrowers can access for both down payment assistance and forgivable home loan repairs.

“I remind people all of the time that we’re in one of the least expensive markets in the country so we shouldn’t expect our housing prices to decrease that much,” Murphy said.

In fact, the median home sale price in the Des Moines area is rising, straining affordability for some prospective buyers. In March, the median home sale price of a home in Des Moines was a record high $315,000.

Surging home insurance rates

Erika Hansen, a real estate agent with Re/Max Real Estate Center in Urbandale, said home buyers tend to be focused more on what their monthly mortgage payments will be rather than interest rates. “We’re looking at the price of the home; what the taxes will be; what their monthly payments would be,” she said.

Home insurance rates are also part of the monthly payment equation, Hansen said. “I have probably doubled what I’m putting down for homeowners’ insurance amounts because it’s gone up so much,” she said.

Between 2020 and 2025 homeowners’ insurance rates in Iowa increased 96%, the second highest in the U.S., according to a report released in February by Lending Tree. Rising construction costs, inflation and an increase in several natural disasters have all played a role in the skyrocketing rates, a spokesperson for the company said.

A few years ago, Bank Iowa underwriters estimated monthly homeowners’ insurance costs at about $100 a month, Smith said. “Now it’s $200 a month. Property taxes are also increasing. Those two pieces are hurting affordability.”

Erik Melloy, a real estate agent with LKR Realtors in Iowa City and president of the Iowa Association of Realtors, said he’s seen some purchase agreements “fall apart” because of the cost of insurance.

“Today’s offers are contingent on [the buyer] being able to obtain an affordable insurance rate,” Melloy said. “We’re seeing buyers not able to do that, and therefore, the offer is canceled. … Before COVID, that hardly ever came into play.”

The next 12 months

Home builders are recognizing that buyers want to keep their monthly mortgage costs down, with some beginning to build ranch-style homes that are around 1,100 square feet with two-car garages, Flint said. Previously, “those homes were harder to sell but I think with interest rates where they are, builders are finding that those homes are moving.”

Hubbell is having success with selling new homes that are 1,300 to 1,400 square feet and have three car garages, Flint said. The move to building smaller homes is a reflection of a market in which buyers are trimming square footage rather than walking away from homeownership.

Hubbell is also seeing more success in building single-family homes than townhomes, Flint said. “I think that’s just because the price differential isn’t great enough between townhomes and single-family homes plus, we’re starting to see a little higher insurance costs on the [homeowners’ association] side for townhomes, and that impacts a buyer’s ability to get financing.”

Smith of Bank Iowa said he expects mortgage rates to stay between 6% and 6.5% in the next 12 to 24 months, citing economists’ forecasts of only slight easing and the uncertainty created by global events and a tightly linked world economy.

Melloy agrees.

“I don’t think we’re going to see any drastic change in the next year,” he said. “It’s going to be slow and steady. Home prices should keep edging up, and while interest rates might come down a little by the end of the year, they’re not going back to the 2%- to 3%-range anytime soon.”

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By the numbers

The following information about Iowa residential loans from the U.S. Federal Housing’s National Mortgage Database is from the end of the fourth quarter of 2025.

514,000 – Total number of outstanding mortgages, the same amount as 2016’s fourth quarter

$76.6 billion – Total unpaid principal balance, 30% more than the $58.8 billion owed in 2016’s fourth quarter

$148,054 – Average mortgage balance per borrower, nearly 30% more than the average balance of $114,396 in 2016’s fourth quarter

4.3% – Average interest rate for outstanding mortgages, slightly less than 4.4% in 2016’s fourth quarter

$1,482 – Average monthly mortgage payment*, 44.4% more than the average monthly  payment of $1,026 in 2016’s fourth quarter

*Includes principal, interest and escrow