The Mortgage Rate Lock-In Effect
Over the past year, one factor that's really limited the options for your move is how few homes were on the market. That's because many homeowners chose to delay their plans to sell once mortgage rates went up.
"The lack of housing supply was partly driven by the rate lock-in effect. . . . With higher rates, the incentive for existing homeowners to list their property and move to a new house has greatly diminished, leaving them rate locked."
— Freddie MacThese homeowners decided to stay put and keep their current lower mortgage rate, rather than move and take on a higher one on their next home.
Homeowners with low rates are reluctant to give them up
When mortgage rates rose sharply in 2022 and 2023, many homeowners who had locked in rates at historic lows (often under 3%) became hesitant to sell. Moving would mean taking on a new mortgage at a significantly higher rate, potentially doubling their monthly payment even for a comparable home.
Early Signs Show Homeowners Are Ready to Move Again
According to the latest data from Realtor.com, there were more homeowners putting their houses up for sale—known in the industry as new listings—in December 2023 compared to December 2022.
Sellers Are Re-Entering the Market
Year-over-Year Change in New Listings (December)
Source: Realtor.com
Here's why this is so significant: Typically, activity in the housing market cools down in the later months of the year as some sellers choose to delay their moves until January rolls around. The fact that listings actually increased year-over-year in December suggests something meaningful is happening.
What This Means for You
While there isn't going to suddenly be an influx of options for your home search, it does mean more sellers may be deciding to list.
"A reduction in interest rates could alleviate the lock-in effect and help lift homeowner mobility. Indeed, interest rates have recently declined, falling by a full percentage point from October to November 2023... Further decreases would reduce the barrier to moving and give homeowners looking to sell a newfound sense of urgency..."
— Joint Center for Housing Studies (JCHS)And that means you may see more homes come onto the market to give you more fresh options to choose from.
Key Takeaways for Buyers
- More inventory may be coming: As rates continue to decline, more homeowners who have been waiting may decide it's time to list.
- Competition may increase: Lower rates don't just help sellers—they help other buyers too. Be prepared for competitive situations.
- Act when you find the right home: Don't wait for "perfect" conditions. When you find a home that meets your needs at a payment you can afford, consider making your move.
- Work with a local expert: A real estate agent can help you stay on top of new listings as they come to market, often before they hit the major websites.
The Bottom Line
As mortgage rates come down, more sellers may re-enter the market—that gives you an opportunity to find the home you're looking for. Connect with a real estate agent so you've got a local expert on your side who'll help you stay on top of the latest listings in your area.
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Whether you're a first-time buyer or looking to move up, we're here to help you navigate the market and find your next home.
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Freddie Mac, Realtor.com, Joint Center for Housing Studies at Harvard University
