Lock-In Effect Remains Strong

Mortgage rates have remained stubbornly high over the past few years, but recent data show that most homeowners actually have rates below 6%. According to a report from housing marketing platform Realtor.com, 53.4% of outstanding mortgages have a rate of 4% or lower, and approximately 71.3% of outstanding mortgage debt has a rate of 5% or lower. This data shows how strong the lock-in effect has been, with most homeowners not willing to let go of their low rates. However, the report suggests the share of buyers with rates below 6% could drop in the near future as more prospective buyers adjust to the current housing market.

The share of homeowners holding a mortgage with a rate of 6% or higher increased 4.4 percentage points between the first quarter of 2024 and the first quarter of 2025 as buyer activity carried on despite high rates. Even in today’s high-price, high-rate market, homebuying activity around big-life events (e.g., kids, marriage, divorce, etc.) keeps the market in motion.

Though the lock-in effect continues to affect the market, a recent survey revealed that 40% of potential buyers would find a home purchase feasible if mortgage rates were to drop below 6%, and 32% of buyers would be willing to participate if rates dropped below 5%. Easing inflation and mortgage rates will be key drivers of seller activity, which will relieve some of the price pressure and competition in today’s under-supplied market.