The lock-in effect is starting to ease because Americans are growing accustomed to elevated rates, and for many, it’s not realistic to stay put forever. That’s boosting listings and easing the housing shortage.

(NASDAQ: RDFN) — Nationwide, 17.2% of U.S. homeowners with mortgages have an interest rate greater than or equal to 6%, the highest share since 2016, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s up nearly five percentage points from 12.3% in the third quarter of 2023. If this growth rate were to continue, which is feasible, the share of homeowners with a rate of at least 6% would nearly double in the next three years.

Meanwhile, 82.8% of homeowners with mortgages have an interest rate below 6%. That means even more have a rate below the current (Jan. 30) weekly average of 6.95%, prompting many to stay put instead of selling and buying another home at a higher rate—a phenomenon called the “lock-in effect.”

But this lock-in effect has been easing; in the third quarter of 2023, for example, 87.7% of mortgaged homeowners had a rate below 6%. And in mid-2022, the share sat at a record 92.7%.

America has been grappling with a severe housing shortage, in part because the lock-in effect has disincentivized people from putting their homes up for sale. Mortgage rates are now more than double the 2.65% record low hit during the pandemic. But for most people, 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. Though it’s worth noting that one reason supply is on the rise is that many homes are sitting on the market, so stale listings are piling up.

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. There are a few other reasons the lock-in effect is easing. One, many Americans are growing accustomed to the idea that rates are unlikely to fall to pandemic lows anytime soon. Two, 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 finally, a rising share of Americans are mortgage-free, which means they’re not locked into 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%, which is why the share of homeowners with rates below 6% has declined.

“The rate-lock effect is letting up a bit here in Seattle,” said local Redfin Premier real estate agent David Palmer. “Homeowners hate to give up their 2-3% mortgage rate, but life happens and people have to move.”

Here’s a breakdown of where today’s homeowners fall on the mortgage-rate spectrum:

• Below 6%: 82.8% of mortgaged U.S. homeowners have a rate below 6%, down from a record 92.7% in Q2 2022 and the lowest share since the Q4 2016.
• Below 5%: 73.3% have a rate below 5%, down from a record 85.6% in Q1 2022 and the lowest share since Q3 2017.
• Below 4%: 55.2% have a rate below 4%, down from a record 65.1% in Q1 2022 and the lowest share since Q4 2020.
• Below 3%: 21.3% have a rate below 3%, down from a record 24.6% in Q1 2022 and the lowest share since Q2 2021.

This is according to a Redfin analysis of data from the Federal Housing Finance Agency’s National Mortgage Database through the third quarter of 2024, the most recent period for which data is available.

Click here to read our economists’ latest outlook for mortgage rates.

To view the full report, including a chart, additional data and methodology, please visit: https://www.redfin.com/news/mortgage-rate-lock-in-effect-eases/

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, and title insurance services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve approximately 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

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