- The fixation on mortgage rates is forcing many homeowners to stay in their homes, contributing to America’s housing shortage.
- But the lock-in effect is slowly wearing off because people will have to move at some point. 86% of homeowners with mortgages have interest rates below 6%, up from 91% in 2023 and a record 93% in 2022.
Nationwide, 85.7% of U.S. homeowners with mortgages have an interest rate below 6%, down from 90.6% at the beginning of last year and a record high of 92.8% in mid-2022.
This even means more than 85.7% of homeowners with mortgages have an interest rate below the current weekly average of 6.46%causing many to stay rather than sell and buy another home at a higher price – a phenomenon known as the “lock-in effect.”
This is according to a Redfin analysis of data from the Federal Housing Finance Agency’s National Mortgage Database as of the first quarter of 2024, the most recent period for which data is available.
Here’s the full breakdown of mortgage rates for today’s homeowners:
- Below 6%: 85.7% of U.S. mortgage holders have an interest rate below 6%, down from a record 92.8% in the second quarter of 2022.
- Below 5%: 76.1% have a rate below 5%, compared to the record of 85.6% in the first quarter of 2022.
- Below 4%: 57.4% have a rate below 4%, compared to the record of 65.3% in the first quarter of 2022.
- Below 3%: 22% have an interest rate below 3%, down from a record 24.7% in the first quarter of 2022.
“I know about a dozen homeowners who want to sell but are not willing to give up their 3% interest rate for one more than twice as high,” said Blakely MintonA Redfin Premier Real estate agent in Philadelphia. “Many of these sellers will list their properties when interest rates go back down to 5%.”
The lock-in effect leads to a shortage of houses for sale; new offers were lowest Level since a year last month. For most people, however, staying in one place forever is unrealistic, which is why the percentage of homeowners with interest rates below 6% is slowly declining. Some homeowners decide to bite the bullet and give up their low interest rate to move. Many sell because a life-changing event like a job change or divorce leaves them with no other choice.
Another reason for the decline in the proportion of homeowners with fixed-rate mortgages is that all of them bought a home last year when the average mortgage rate was above 6%.
It’s worth noting that for some homeowners, the pandemic-related rise in property values means they have enough equity to justify selling and taking on a higher interest rate – especially if they’re downsizing or moving to a cheaper location. It’s also worth noting that while many homeowners remain locked into their low mortgage rates, a growing share of Americans Mortgage-free.
Mortgage rates have fallen in recent weeks, resulting in mortgage payments for homebuyers fall for the first time since 2020. The current average weekly mortgage rate (6.46%) is the lowest in 15 months, but still significantly higher than the record low of 2.65% reached during the pandemic.
Given the falling inflation, the Federal Reserve is now expected to begin cutting interest rates at its next meeting on September 18.The extent and pace will depend on future economic data, particularly labor market data. MMarkets have now priced in aggressive expectations about the speed of the Fed’s rate cuts. If the Fed ends up cutting rates more slowly than expected, mortgage rates could rise somewhat.
methodology
This report is based on a Redfin analysis of FHFA data National Mortgage Databasea nationally representative 5% sample of all first lien, closed or refinanced mortgage loans in the United States. The first quarter of 2024 is the most recent period for which data on outstanding mortgage loans are available. We assume that each loan represents one homeowner with one mortgage, although some homeowners may have multiple loans.
While mortgage rates for homebuyers often change quickly, rates for existing homeowners typically do not change much from quarter to quarter because most buyers take out 30-year mortgages. About 60% of homeowners in the U.S. have a mortgage paid off.
