The percentage of homeowners with mortgages who have an interest rate at or above 6 percent now stands at 17.2 percent, the highest share for that metric since 2016, per a new report from Redfin.
That figure rose by almost five percentage points from 12.3 percent in the third quarter of 2023. If this growth rate continues, the share of homeowners with a rate of at least 6 percent would nearly double in the next three years.
On the other side of the coin, 82.8 percent of homeowners with mortgages have an interest rate below 6 percent. This means that an even larger number have a rate below the Jan. 30 weekly average of 6.95 percent, prompting many to stay put instead of selling and buying another home at a higher rate—a phenomenon called the “lock-in effect.”
The numbers suggest the lock-in effect is easing; in the third quarter of 2023, for example, 87.7 percent of mortgaged homeowners had a rate below 6 percent. And in mid-2022, this share was at a record level of 92.7 percent. The first quarter of 2022 saw record levels of mortgaged homeowners with rates below 5 percent (85.6 percent), 4 percent (65.1 percent) and 3 percent (24.6 percent), according to a Redfin analysis of data from the Federal Housing Finance Agency’s National Mortgage Database through the third quarter of 2024.
Mortgage rates are now more than double the 2.65 percent record low hit during the pandemic. For most people, it’s not realistic to stay put forever, which is why the lock-in effect is easing, Redfin reported. This is slowly alleviating the housing shortage; new listings and active listings are both higher than they were a year ago. One reason supply is rising is that many homes are sitting on the market, so there is a backload of older listings.
Redfin agents report many people are moving due to a major life event such as a job change or divorce. The lock-in effect is also easing because Americans are growing accustomed to the idea that rates are unlikely to fall to pandemic lows anytime soon, the pandemic surge in home values means many homeowners have enough equity to justify selling and taking on a higher rate, and a rising share of Americans are mortgage-free, meaning they’re not locked into any rate at all.
Everyone who bought a home in the last two years did so at a time when the average weekly mortgage rate was above 6 percent, which is why the share of homeowners with sub-6 percent rates has declined.
“The rate-lock effect is letting up a bit here in Seattle,” local Redfin Premier real estate agent David Palmer said. “Homeowners hate to give up their 2-3 percent mortgage rate, but life happens and people have to move.”