HOUSTON – (By Dale King, Realty News Report) – When real estate professionals ponder the housing shortage that has seriously impeded the residential sales market the past few years, they most certainly list the so-called “lock-in effect” among its causes.
Hard to Leave That 3% Mortgage
That “effect” prompted many homeowners who hold low-rate mortgages issued before interest levels soared to stay put rather than sell their home and buy another one at a higher loan amount.
That situation appears to be changing. A new report from real estate brokerage Redfin says the lock-in logjam is starting to diminish “because Americans are growing accustomed to elevated rates, and for many, it’s not realistic to stay put forever.”
The result is already being seen in a slow, but noticeable boost in the number of homes on the market, says Redfin. And the firm has survey numbers to back up the claim.
Nationwide, 17.2 percent of U.S. homeowners with mortgages have an interest rate greater than or equal to 6 percent, the highest share of property holders in that bracket since 2016. That’s up nearly five percentage points from 12.3 percent in the third quarter of 2023.
If this growth rate continues — which is feasible, Redfin says — the share of homeowners with a rate of at least 6 percent would nearly double in the next three years.
Meanwhile, 82.8 percent of homeowners with mortgages pay an interest rate below 6 percent, which prompted many to hunker down rather than meander into higher mortgage territory.
But change is already in the wind, says Redfin. In the third quarter of 2023, for example, 87.7 percent of mortgaged homeowners paid a rate below 6 percent. And in mid-2022, the number of households with a low-rate figure sat at a record 92.7 percent.
Current 30-Year Rate Close to 7%
Currently, mortgage rates are more than double the 2.65 percent record-setting minimal amount recorded during the pandemic. On Thursday, Feb. 13, Freddie Mac released the latest findings showing the 30-year fixed-rate mortgage averaged 6.87 percent, down from last week when it averaged 6.89 percent. A year ago at this time, the 30-year FRM averaged 6.77 percent.
“The 30-year FRM continued to inch down this week, reaching its lowest level thus far in 2025,” said Freddie Mac chief economist Sam Khater. “Recent mortgage rate stability is benefitting potential buyers as purchase demand is stronger than this time last year. This is an indication that a thaw in buyer activity could be on the horizon.”
This seems to give credence to the survey’s finding that “it’s not realistic to stay put forever, which is why the lock-in effect is easing. This is slowly alleviating the housing shortage. New listings and active listings are both higher than they were a year ago.”
Redfin agents report that many people are moving because a major life event like a job change or divorce has given them no other choice.
A few other explanations are helping to ease the lock-in effect. Many Americans are growing accustomed to the idea that rates are unlikely to fall to pandemic lows anytime soon. Also, the pandemic surge in home values means many homeowners have enough equity to justify selling and taking on a higher rate—especially if they’re downsizing or moving somewhere more affordable.
And an increasing share of Americans are mortgage-free, which means they’re not locked in to any rate at all.
Everyone who bought a home in the last two years did so at a time when the average weekly mortgage rate was above 6 percent, which is why the share of homeowners with rates below 6 percent has dropped.
“The rate-lock effect is letting up a bit here,” said Redfin Premier real estate agent David Palmer, based in Seattle. “Homeowners hate to give up their 2 to 3 percent mortgage rate, but life happens — and people have to move.”
The Federal Reserve, which has already cut interest rates three times, is not likely to move for a while, says the Redfin survey.
“The Fed decided to hold its policy rate steady, and they see no reason to cut further until inflation comes down more. In light of recent economic data, the Fed is more concerned with inflation getting stuck above target than labor market weakness.”
“This is a meaningful change from their view in the fall. As such, they are hesitant to commit to further cuts until there is more progress on inflation. Futures markets currently do not expect another rate cut until June.”
The following is a breakdown of where today’s homeowners fall on the mortgage-rate spectrum:
- Below 6 percent: 82.8 percent of mortgaged U.S. homeowners have a rate below 6 percent, down from a record 92.7 percent in quarter 2 of 2022 and the lowest share since quarter 4 of 2016.
- Below 5 percent: 73.3 percent have a rate below 5 percent, down from a record 85.6 percent in Q1 2022 and the lowest share since Q3 2017.
- Below 4 percent: 55.2 percent have a rate below 4 percent, down from a record 65.1 percent in Q1 2022 and the lowest share since Q4 2020.
- Below 3 percent: 21.3 percent have a rate below 3 percent, down from a record 24.6 percent in Q1 2022 and the lowest share since Q2 2021.
Feb. 14, 2025 Realty News Report Copyright 2025
THE RALPH BIVINS PROJECT PODCAST
LISTEN: THE RALPH BIVINS PROJECT with Danny Rice of Colliers
LISTEN: THE RALPH BIVINS PROJECT with Trey Odom of Avera
LISTEN: THE RALPH BIVINS PROJECT with Kris Larson of Downtown Houston +
LISTEN: THE RALPH BIVINS PROJECT with Jim Carman of Howard Hughes Holdings
LISTEN: THE RALPH BIVINS PROJECT with Jeff Havsy of Moody’s Analytics
LISTEN: THE RALPH BIVINS PROJECT with Sam Scott of CommGate
LISTEN: THE RALPH BIVINS PROJECT with John S. Moody, Jr. of Moody Law Group
LISTEN: THE RALPH BIVINS PROJECT with Scott Martin of Granite Properties
LISTEN: THE RALPH BIVINS PROJECT with Robert Clay of Clay Development
Photo: CALpix
File: Mortgage Handcuffs Losing Their Grip Freddie Mac, Redfin, Mortgage Handcuffs Losing Their Grip, 30-year, Mortgage Handcuffs Losing Their Grip