How the Mortgage Rate Lock-In Effect Is Freezing Home Sales

Lisa Mailhot  |  June 17, 2024


How the Mortgage Rate Lock-In Effect Is Freezing Home Sales


Understanding the Mortgage Rate Lock-In Effect

The mortgage rate lock-in effect is creating a major barrier in the housing market. This phenomenon occurs when homeowners with existing mortgages at lower interest rates hesitate to sell their homes due to the much higher rates they would face on new mortgages.

The Impact of Rising Mortgage Rates

As of June 12, 2024, the average 30-year fixed mortgage rate stood at 7.17%, while the effective mortgage rate on outstanding U.S. mortgages was only 4.0%. This stark difference discourages homeowners from selling, as they would need to exchange their low rate for a significantly higher one.

Staggering Numbers: Lost Home Sales

Researchers at the Federal Housing Finance Agency highlighted this issue in their working paper titled "The Lock-In Effect of Rising Mortgage Rates," published in March 2024. They found that rising mortgage rates led to 1.3 million "lost" existing-home sales between Q2 2022 and Q4 2023, including 182,490 in California alone.

Reasons Behind the Lock-In Effect

Nearly all of the 50 million active U.S. mortgages have fixed rates, most of which are well below the current market rates. This creates a strong disincentive to sell, as homeowners would face a significant increase in their monthly payments.


Potential Solutions to Ease the Lock-In Effect

Life Events: Major life changes, such as having more children or receiving a big promotion, might prompt homeowners to sell despite their low mortgage rates.

Falling Mortgage Rates: If mortgage rates decrease, improved affordability could encourage more homeowners to move. For example, while a 4.0% rate might not be swapped for 7.0%, a reduction to around 5.5% could make the switch more appealing.

Future Outlook

According to Ralph McLaughlin, senior economist at, the lock-in effect might persist until at least the end of 2025. Significant rate cuts by the Federal Reserve are required to alleviate this effect, but the current market forecasts only a few cuts over the next couple of years.


The mortgage rate lock-in effect is a significant hurdle in the housing market, preventing many potential sales. If you're considering moving and want to understand how these trends might affect you, let's connect and explore your options.



Reference:  Lambert, L. (2024, June 12). Here’s How Many Home Sales Were ‘Lost’ by the Mortgage Rate Lock-In Effect.


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