A report from Redfin has revealed that 88.5% of homeowners with mortgages have interest rates below 6%, a drop from the record high of 92.8% in mid-2022.
Despite the current weekly average rate of 6.66%, the majority of homeowners are holding onto their low rates, leading to a phenomenon known as the "lock-in effect." However, many homeowners are eventually forced to give up their low rates and sell their homes due to major life events, such as divorce, new jobs, or deaths in the family. Some are choosing to move to different homes or cities.
The lock-in effect has contributed to the shortage of homes for sale, as homeowners are reluctant to sell and lose their low rates. While listings have started to increase, this is partly due to homeowners who must move and others who are enticed by falling mortgage rates. The average 30-year mortgage rate of 6.66% is still higher than it was a year ago, leading to concerns about affordability for potential buyers.
The breakdown of homeowners' mortgage rates in the report reveals the following:
- Below 6%: 88.5% of mortgaged U.S. homeowners have rates below 6%, down from 92.8% in the second quarter of 2022.
- Below 5%: 78.7% have rates below 5%, down from 85.6% in the first quarter of 2022.
- Below 4%: 59.4% have rates below 4%, down from 65.3% in the first quarter of 2022.
- Below 3%: 22.6% have rates below 3%, down from 24.6% in the first quarter of 2022.
While mortgage rates have dipped, it remains more expensive to buy and sell homes compared to a year ago, with the typical homebuyer taking on a monthly payment of $2,399 for a median-priced home. This is still 7.4% higher than it was a year ago due to the combination of higher mortgage rates and home prices.
