How the Mortgage Rate Lock-In Effect Is Freezing Home Sales
Lisa Mailhot | June 17, 2024
Buyers
Lisa Mailhot | June 17, 2024
Buyers
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.
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.
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.
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.
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.
According to Ralph McLaughlin, senior economist at Realtor.com, 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.
Zombie foreclosures—vacant homes abandoned during the foreclosure process—are creeping back into the housing market. These neglected properties are rising in states li… Read more
Investor interest in condos has taken a sharp dive, hitting the lowest point in a decade. This shift—driven largely by market conditions in Florida—could signal new op… Read more
Mortgage applications declined for the second consecutive week amid rising interest rates, signaling a national cooling in housing demand. Discover what’s driving thes… Read more
The multifamily market is facing a major financial restructuring with rising interest rates, distressed properties, and declining valuations. Discover why these shifts… Read more
With rents rising and housing shortages worsening, micro-housing is emerging as a practical and affordable solution in cities across the U.S. Learn how these compact h… Read more
Despite fears, Trump's new tariffs haven’t ignited inflation—yet. While some economists warn of delayed price hikes due to supply chain disruptions, others point to co… Read more
With housing prices strong and inflation sticking around, many homeowners are turning to HELOCs as a flexible borrowing option. Learn why financial experts still recom… Read more
As mortgage rates surge to their highest point since February 2025, demand for home loans is cooling. Yet with price growth slowing and more homes entering the market,… Read more
Build-to-rent (BTR) housing is rapidly transforming entire neighborhoods across the U.S., particularly in metros like Phoenix, Dallas, and Atlanta. Learn how this tren… Read more
Let's find a time that suits you best to chat about your goals, show you how we work, and figure out how we can help you the most
Get In Touch With Lisa
Broker Associate
949-877-7087
124 Tustin Ave Suite 200, Newport Beach, CA 92663
