Redfin Report

89% of People With Mortgages Have an Interest Rate Below 6%, Down From a Record 93% in 2022

(NASDAQ: RDFN) — Nationwide, 88.5% of U.S. homeowners with mortgages have an interest rate below 6%, down from a record high of 92.8% in mid-2022, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

That means more than 88.5% of homeowners with mortgages have a rate below the current weekly average of 6.66%, prompting many to stay put instead of selling and buying another home at a higher rate—a phenomenon called the “lock-in effect.”

But for most people, it’s not realistic to stay put forever. The share of homeowners with a rate below 6% has fallen from its record high partly because some homeowners are opting to bite the bullet and give up their low rate in order to move. Many are selling because a major life event like a divorce has given them no other choice, while others are putting their homes on the market because they want to live in a different house or city.

Another reason the share has dipped: Everyone who purchased a home in the last year—repeat buyers and first-time buyers alike—was entering the market at a time when the average mortgage rate was above 6%.

“I’m working with a lot of homeowners who are selling because of things like divorces, new jobs or deaths in the family,” said David Palmer, a Redfin Premier real estate agent in Seattle.

“I’m also working with homeowners who are bursting at the seams and selling because they’ve outgrown their current home.”

It’s worth noting that for some homeowners, the fact that home prices soared during the pandemic means they have enough equity to justify selling and taking on a higher rate—especially if they’re downsizing or moving somewhere more affordable.

The Lock-In Effect Continues to Fuel America’s Housing Shortage, But Listings Have Started to Tick Up

Americans continue to face a shortage of homes for sale, and a primary reason is the lock-in effect.

But home listings have been ticking up year over year, in part because some homeowners simply have to move, as discussed above. Listings are also rising because mortgage rates have fallen enough in recent weeks to convince some homeowners to let go of their low rate. Today’s 6.66% average mortgage rate is down from a peak of roughly 8% in October.

“Sellers have started coming out of the woodwork because that’s typical for January and because mortgage rates have dropped,” Palmer said. “They’re also coming to terms with the fact that rates aren’t going back down to 3% any time soon, which makes it easier to pull the trigger on selling. But a lot of sellers are worried about finding their next house because even though listings are rising, there’s still a housing shortage. That’s part of the reason so many sellers remain on the sidelines.”