A recent report from Redfin reveals a significant trend in the US housing market: the number of homeowners with mortgage rates below 6% is steadily decreasing. This shift, though seemingly small, could have substantial implications for the market’s future. For months, economists have highlighted the ‘lock-in effect,’ where homeowners with low interest rates have been reluctant to sell and buy at higher rates, contributing to the current housing shortage.
The report indicates that 86% of US homeowners with mortgages now have rates below 6%, down from 91% at the start of 2023 and a peak of 93% in mid-2022. This change is attributed to various factors, including job transfers, growing families, and divorces, forcing some homeowners to move despite their favorable interest rates. Others are deciding that the equity they’ve built up outweighs the higher interest rates, especially when downsizing or relocating to a cheaper area.
While this loosening of the lock-in effect could lead to more homes being listed for sale, experts caution against expecting a major price drop. Lawrence Yun, chief economist at the National Association of Realtors, emphasizes that persistent demand will balance out any increase in supply. Despite hitting a record high in June, home prices saw a slight dip in July, indicating a potential shift in the market. However, Yun believes a repeat of the 2008 price decline is unlikely due to the ongoing strong demand.
The Federal Reserve’s anticipated interest rate cuts, expected to start in September, could further influence the market. Lower rates could encourage more owners to sell, but they might also unleash pent-up buyer demand, potentially driving prices even higher. While the easing of the lock-in effect could lead to a larger inventory of homes, a return to ‘normal’ levels is still a long way off.
Greg McBride, Bankrate’s chief financial analyst, points out that the current price surge is primarily driven by heightened demand and limited supply. He believes that as builders bring more homes to market and more homeowners decide to sell, the balance between supply and demand will eventually be restored. However, this process is not expected to happen overnight.
