Could the Mortgage Rate Lock-in Effect Have an Upside?

In today’s housing market, long-time homeowners have a leg up on prospective buyers, with higher mortgage rates discouraging many homeowners from selling. According to Fast Company, 96% of homeowners have fixed-rate mortgages, and 39% of homeowners don’t have a mortgage at all. While on the outside these factors don’t appear to help prospective buyers, housing market experts argue that fewer distressed sales and foreclosures could keep national home price increases at bay despite the rise in mortgage rates.

“Rapidly deteriorating affordability in this cycle has already caused significant decreases in housing activity, specifically existing home sales, but has left national home prices more or less unscathed,” wrote Morgan Stanley analysts recently. “As we have detailed in numerous research reports, the biggest reason is the lock-in effect. Homeowners have not experienced the decline in affordability… They have locked in low, fixed-rate mortgages for 30 years that have simply disincentivized them from listing their homes for sale. In other words, homeowners represent strong hands in this cycle.”

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