Lock-In Slowly Melting As More Buyers Accept Higher Rates

The rate lock-in effect is slowly melting away as homeowners find they can’t avoid near-7% rates.

Across the country, 17.2% of homeowners have mortgage rates greater than or equal to 6%, the highest share since 2016, according to new data from Redfin.

This is up almost 5% from 12.3% in Q3 2023.

Redfin suggests this growth rate may stay steady, potentially doubling that number in the next three years.

However, 82.2% of homeowners still have rates below 6%, down from more than 90% in 2022 but still a barrier to a booming market. Nearly three quarters have a rate below 5%, 55% are below 4%, and 21% remain below 3%.

The result is a slow housing market burdened by unaffordability. Home prices remain at historic highs across the country, making mortgage rates a significant factor for potential buyers, especially those with ultra-low rates. Though the lock-in effect is dissipating, demand indicators are still suppressed.

New listings of U.S. homes for sale rose 7.9% YOY during the four weeks ending February 2, the biggest increase since the end of last year. More listings give buyers more opportunities to negotiate and help keep prices level, but buyers have yet to take the bait.

“Listings are picking up as we inch toward spring. Homeowners have been holding off, waiting for mortgage rates to go down or market conditions to improve, and now it seems clear rates have declined about as much as they’re going to decline for now,” said Joe Paolazzi, a Redfin Premier agent in Pittsburgh.

“Sellers are also noticing that even though there are fewer buyers in the market than usual, the buyers who are on the hunt are serious and willing to pay a fair price. There are bidding wars for homes in desirable neighborhoods, and for investment properties that would be easy to rent out.”