During the pandemic-era housing market, homebuyers enjoyed sub-3% rates, ushering in a wave of homebuying among younger generations. But in the following few years, the American Dream came crashing down as mortgage rates and home prices rose, and inflation and wage stagnation set in.
That meant more homeowners in the U.S. had sub-3% mortgage rates compared with today’s 6%-range rates, creating a lock-in effect in which current homeowners refused to let go of their low mortgage rates and sell their homes only to turn around and face a much higher mortgage rate.
But now there’s a crack in the lock-in effect: Real estate investor and Reventure CEO Nick Gerli recently said that as of the end of 2025, there are actually now more homeowners with mortgage rates higher than 6% than borrowers locked into sub-3% rates, ending one of the most generous eras for home financing in modern history.
“Something big just happened in the U.S. Housing Market,” Gerli wrote in a Jan. 3 X post, referring to the change in share of homeowners with sub-3% mortgage rates. That means the “the dreaded Mortgage Rate ‘Lock-In’ Effect is fading.”
During the lock-in effect period, millions of existing homeowners with ultra-low rates have been financially disincentivized to move or “trade up,” i.e., buy a more expensive or larger home, which made the number of homes for sale scarce for would-be homebuyers. This led to younger-generation bidding wars for a limited pool of starter homes and kept many locked out of the market. In fact, the average first-time homebuyer age skyrocketed to 40 in 2025, according to the National Association of Realtors, and the share of first-time home buyers plummeted to a record low of 21%.
“The historically low share of first-time buyers underscores the real-world consequences of a housing market starved for affordable inventory,” Jessica Lautz, NAR deputy chief economist and vice president of research, said in a statement. “The share of first-time buyers in the market has contracted by 50% since 2007—right before the Great Recession.”
But that all could change, Gerli said, since fewer homeowners have the attractive sub-3% mortgage rate.
“Since more existing owners have a higher rate, that means more have a payment and rate closer to ‘market,’” he explained, “which means there will be more incentive to sell – which is actually good news.” Gerli analyzed Q3 2025 data from Fannie Mae’s mortgage database .
A turning point on rates
Gerli’s analysis shows the share of mortgages with rates of 6% or higher has surged from about 7% in 2022 to roughly 20% by late 2025, overtaking the once‑dominant pool of pandemic‑era borrowers with sub-3 % rates. Those pandemic-era loans peaked at nearly 25% of all outstanding loans in 2021, the analysis shows, but that share has been steadily shrinking as new buyers take out higher‑cost loans and older-generation buyers move or refinance.
“This is happening because even in today’s depressed sales and refinance environment, each year about 5-6 million Americans take out a new mortgage, now at 6%+ rates,” Gerli explained.
Meanwhile, mortgage rates have fallen from their 2023–2024 highs, peaking at 8% in October 2023. Today, the average 30‑year fixed hovers around the low‑6% range—still more than double highly attractive pandemic-era rates.
To be sure, Gerli’s analysis doesn’t mean he predicts mortgage rates themselves are falling. Plus, economists and housing market experts say a full return to sub‑3% borrowing is unrealistic and is unlikely to happen again, barring a major economic or worldwide event.
“The circumstances that lead to rates the sub-3% of 2020-2021 past were a worldwide, once-in-a-lifetime (hopefully) pandemic,” Max Slyusarchuk, CEO of A&D Mortgage, recently told Fortune. Meanwhile, “the last time we saw a 50%-plus increase in average wages was likely post-World War II, and I believe that took two-plus decades to realize.”
But Gerli argues even a sustained move below 6% could be enough to unlock some frozen inventory as current owners finally feel comfortable trading up or down.
“Expect more upward pressure on new listings and inventory in future years as a result,” he said.
Plus, more than 30 million homeowners don’t have a mortgage right now, and the share of homeowners who don’t have a mortgage payment rose to 40% in 2023, up from 33% in 2010. That reflects a trend toward outright homeownership and conservative borrowing, according to a Goldman Sachs note from July. While that’s nice for outright owners, it’s a warning sign for buyers competing against older-generation, equity-rich households.
The affordability gap and what 2026 buyers should expect
That imbalance also explains why more than 75% of homes on the market are now unaffordable to the typical household, according to a recent Bankrate analysis, which found most Americans are $30,000 short of what it takes to afford a median-priced home. Americans now need at least a six-figure salary to comfortably own a typical property in most markets, yet the average salary is just about $64,000.
“When only a sliver of the market is affordable to the typical household, homeownership starts to feel less like a milestone and more like a luxury,” said Bankrate data analyst Alex Gailey. “It’s no surprise that one in six aspiring homeowners have walked away in the last five years.” Another Bankrate analysis from September 2025 shows one in six aspiring homeowners had completely given up on finding a home to buy.
That means mortgage rates—combined with home prices that are 50% higher than they were before the pandemic—are reshaping what a starter home means to new buyers. Higher borrowing costs mean today’s buyers can afford roughly 30% to 40% less house than they could in 2021. That’s forced many would-be buyers to alter their expectations, move to cheaper cities, or delay homeownership altogether.
Indeed, coastal cities like New York, Los Angeles, Miami, San Francisco, San Diego, and San Jose have gotten so expensive that not even a 0% mortgage rate would be enough to make a median-priced home affordable for a household earning the local median income, according to an August Zillow report. And Zillow economic analyst Anushna Prakash said this was “unrealistic” considering the massive dip required to get there.
“While lower rates certainly help, they are just one piece of a far more complex puzzle that includes inventory shortages, wage stagnation, and rising insurance and tax costs,” James Schenck, CEO of PenFed Credit Union, previously told Fortune. “In other words, housing affordability is about more than just the Fed—it’s about the full ecosystem of access and equity.”
And economic forecasts offer only modest relief for mortgage rates and housing affordability. While housing analysts expect mortgage rates to drop slightly in 2026 compared to 2025, that won’t make a massive difference in housing affordability. A recent analysis based on Realtor.com data shared with Fortune suggested it would take one of three unlikely shifts to restore broad affordability: a steep drop in mortgage rates to the mid‑2% range, a more than 50% jump in household incomes, or a roughly one‑third plunge in home prices.
“We see the housing market remaining relatively stuck without major progress being made on affordability until we see income growth rapidly accelerate—unlikely—, mortgage rates decline very materially—unlikely—, home prices come down materially—unlikely,” Sean Roberts, CEO of offsite construction company Villa, told Fortune.
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