The "Mortgage Rate Lock-In Effect”

The "Mortgage Rate Lock-In Effect”

A recent Redfin article delved into the "mortgage rate lock-in effect”, where homeowners are reluctant to sell their homes due to their advantageous low mortgage rates - which is intensifying the housing shortage. As we mentioned in July, 86% of mortgages have an interest rate below 6%, but that has been gradually decreasing over the past two years (93% in 2022, 91% in 2023, 86% this year).

Current percentage of mortgages with:

• Rates Below 6%: 85.7% (down from 92.8% in 2022)

• Rates Below 5%: 76.1% (down from 85.6% in 2022) 

• Rates Below 4%: 57.4% (down from 65.3% in 2022) 

• Rates Below 3%: 22% (down from 24.7% in 2022)

Ralph’s Take

The good news is that the lock-in effect is beginning to ease as mortgage rates decline. It's also worth noting that the surge in home values following the pandemic provided some homeowners with enough equity to make selling, or even taking on a higher mortgage rate, worthwhile — particularly when downsizing or moving to a more affordable area. Additionally, there’s an increasing number of homeowners who are mortgage-free altogether.