As with golden handcuffs that keep many employees from jumping ship, a golden mortgage may be preventing many homeowners from moving addresses.
A recent surge in mortgage rates that’s seen the average 30-year fixed-rate mortgage hit as high as 7.6% is keeping many would-be homebuyers on the sidelines—and particularly those who locked in historically low rates several years ago. Loans originated between mid-2019 and mid-2022, when rates dipped below 3%, now account for 42.8% of the market, according to a report released Thursday by Realtor.com.
Nearly half of U.S. homeowners are currently sitting in a home with a mortgage rate of less than 4%, including about one in five homeowners who are locked in at a rate of less than 3%, according to the latest figures from the Federal Housing Finance Agency. What’s more, many homeowners sitting on those “rock-bottom” rates have no natural payoff or move horizon in sight, factors that are weighing on the housing market, according to Hannah Jones, senior economist at the Austin-based real estate site.
“Homeowners are still making decisions around those unusually low rates today,” Jones said in a statement. That cohort includes both people who bought a home during that period, as well as those who refinanced between 2020 and 2021 to lock in those exceptionally low rates, she added.
Outstanding mortgages with rates above 6% currently make up 22.5% of the overall market, and that share could rise to as high as 28.5% by this time next year as rates are likely to remain above that level, according to Jones. And the pandemic-era refinancing wave is aging into mortgage rate lock-in, which remains the dominant force in the housing market, she noted.
“The rate unlock is real, but it’s slow, as low-rate loans gradually age out, are traded up or paid off,” Jones said.
HIGHER RATES ARE HERE TO STAY
Even if various measures have recently shown that the housing market has slowed considerably, it hasn’t ground to a halt—and people will adjust to what appears to be the new normal of mortgage rates above 6% for the foreseeable future.
“Even in today’s high-price, high-rate market, homebuying activity around major life events, such as having kids, a job change, or a divorce, keeps the market in motion,” Jones said.
While lower mortgage rates would certainly help, easing inflation might also spur more activity in the housing market, Jones said. Finally, more buyers could be lured from the sidelines if the inventory of homes on the market increased, which would relieve price pressure and some competition issues, she added.
“However, the recent surge in mortgage rates has pushed expectations of recovery further afield,” Jones said.