Is the Lock-in Effect Finally Easing?

The lock-in effect appears to be dwindling, with the portion of homeowners with high mortgage rates growing. According to a recent report from real estate marketing platform Redfin, 17.2% of U.S. homeowners with mortgages have an interest rate greater than or equal to 6%. This is up nearly five percentage points from Q3 2023’s 12.3% and the highest share since 2016. Still, 82.8% of homeowners with mortgages have interest rates below 6%. While this percentage remains high, it has declined over the last several quarters. In Q3 2023, 87.7% of mortgaged homeowners had a rate below 6%, and in mid-2022, the share reached 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. Read more