The housing market recently crossed a noteworthy line: There are now more Americans with mortgage rates higher than 6 percent than below 3 percent.
It matters because those ultralow, pandemic-era rates — while great for the homeowners who nabbed them — have been something of a problem for the housing market ever since.
People are loath to sell their homes when it means giving up a cheap loan for a significantly more expensive one. Mortgage rates have more than doubled since 2021, when a 30-year loan could be had for less than 3 percent, Federal Reserve data show, and they have remained above 6 percent for more than three years.
Homeowners with low rates stayed put, and the ensuing drop in home listings gave rise to an inventory crunch and surging property prices — a dynamic known as the “mortgage lock-in effect.”
Now, the lock-in effect might be easing.
“The direction going forward will be higher average interest rates for homeowners, and that’s actually a good thing, because it’s going to reduce the lock-in effect,” said Nick Gerli, chief executive of the real estate app Reventure, who pointed out the mortgage rate crossover on the social media site X. “We are going to see potentially a lot more inventory in the future, as that lock-in effect just continues to weaken.”
People with low mortgage rates are more likely to give them up if their homes no longer serve their needs. They get new jobs, marry, divorce, have children, retire — all reasons that might persuade them to sell even if it means relinquishing a great interest rate. That helps explain why the volume of sub-3 percent mortgages shrinks every month and those above 6 percent have climbed, because most new 30-year mortgages are in the 6 percent range.
But Redfin chief economist Daryl Fairweather said home shoppers shouldn’t expect the recent crossover to make a huge difference. “It’s becoming less of a problem the more that time goes on, but it’s a slow unwinding,” she said.
Fairweather considers anyone with a rate below 4 percent, not 3 percent, to be “locked in,” a level that still applies to more than half of all mortgage holders. Even rates under 5 percent are favorable enough that sellers are likely to think twice before moving. “It’s probably going to be another four, five years of it being a major factor in the housing market.”
According to a July Bankrate survey, 54 percent of U.S. adults said there was no mortgage rate at which they would be comfortable selling their home, up 12 percentage points from 2024. Nearly 1 in 3 (32 percent) would need a mortgage rate lower than 6 percent to feel comfortable, while 23 percent said rates would need to fall below 5 percent.
Even a 1 percentage point difference can add up to tens of thousands of dollars over the life of the loan.
Tomasz Piskorski, a real estate expert at Columbia Business School, noted that about 40 percent of homes don’t have a mortgage at all, so the lock-in effect isn’t solely to blame for the lack of turnover and soaring home prices. Inflation, including rising labor and construction costs, has more to do with why the median home price rose about $100,000 since 2019, now topping $410,000.
“Every day the lock-in effect is getting weaker. The older people, sooner or later, whether they have a lock-in effect or not, they start moving out,” Piskorski said. “I would say the lock-in effect won’t be a story, definitely, in 10 years.”
In the meantime, though, it creates a generational divide: “The young people feel like they cannot afford, because the old people are not selling because they have low interest rates. It’s that group of folks that delayed downsizing [that is] important to driving the supply effect.”
Expectations for 2026 real estate market vary. Gerli’s company Reventure projects U.S. home prices will stay flat this year, though projections vary dramatically from one region to the next. Prices are expected to decline in Tennessee and Arizona, for example, and trend higher in Illinois.
The real estate site Realtor.com forecasts a small increase in existing-home sales, which fell to its lowest level in decades in 2o25. It predicts a 1.7 percent increase in sales and a nearly 9 percent jump in inventory, fueled by construction. A competitor, Zillow, foresees a more than 4 percent jump in such sales and a 1.2 percent uptick in prices.
The National Association of Realtors, an industry trade group, predicts a 14 percent jump in existing-home sales and a 4 percent jump in prices. In other words, even if the lock-in effect really did fade fast, it wouldn’t necessarily make houses cheaper for would-be buyers.
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