More than nine of every 10 U.S. homeowners with mortgages have an interest rate below 6%, according to a report released Wednesday by Redfin.
The Seattle-based digital real estate brokerage said that applies to 91.8% of mortgaged homes . That’s down just slightly from the record high of 92.9% in mid-2022.
In addition, well over 92% of homeowners with mortgages — near the highest level in over 20 years — have rates below the current weekly average rate of 6.71%, Redfin said.
Homeowners holding onto their comparatively low mortgage rates is the main reason for the current staggering shortage of new listings of homes for sale. Here’s the full breakdown of where today’s homeowners fall on the mortgage-rate spectrum:
- Below 6%: 91.8% of mortgaged homeowners have a rate below 6%, down from a record high of 92.9% in the second quarter of 2022.
- Below 5%: 82.4% have a rate below 5%, down from a peak of 85.7% in the first quarter of 2022.
- Below 4%: 62% have a rate below 4%, also down from a record high (65.3%) in the first quarter of 2022.
- Below 3%: 23.5% an interest rate below 3%, near the highest share on record. The highest was 24.6% in the first quarter of 2022.
'Lock-In' Effect
Many potential sellers are staying put rather than listing their homes to avoid taking on a much higher mortgage rate when they buy their new house. This “lock-in” effect has pushed inventory to record lows this spring.
New listings of homes for sale and the total number of listings have dropped to their lowest level on record for this time of year, fueling homebuyer competition in some markets and preventing home prices from falling further, even amid tepid demand.
Even though the share of homeowners with mortgage rates below 5% or 6% has come down slightly because more people have bought homes with today’s elevated rates, it’s still true that nearly every homeowner would take on a higher mortgage rate if they moved, Redfin said.
As a result, most people who don’t need to move stay put, severely limiting the inventory available to buyers. Pending home sales are down about 17% from a year ago.
“High mortgage rates are a double whammy because they’re discouraging both buyers and sellers — and they’re discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy,” said Redfin Deputy Chief Economist Taylor Marr. “The lock-in effect is unlikely to go away in the near future. Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further. Some of them simply don’t want to take on a 6%-plus mortgage rate, and some can’t afford to.”
Just over one-quarter (27%) of homeowners who are considering listing their home in the next year would feel more urgency to sell if rates dropped to 5% or below, according to the survey conducted for Redfin by Qualtrics in early June.
The survey says nearly half (49%) would feel more urgency if rates were to drop to 4% or below; the share increases to 78% if they were to drop to 3% or below — which is highly unlikely any time soon.
“The only people selling right now are the ones who need to,” said Atlanta Redfin Premier agent Jasmine Harris. “The last three potential sellers I’ve met are people who are moving out of the country.”
Harris continued, “I’m also working with someone who’s moving out of town for a new job and another person who needs a smaller home for health reasons. So there are some homes coming on the market, but not nearly as many as there would be if rates weren’t so high.”
In more typical times, she said, “We’d also have people selling simply because they wanted to move to a different neighborhood or wanted a bigger home and/or one with different features.”
Monthly Payment Up $1K
The typical homebuyer purchasing today’s median-priced U.S. home (roughly $380,000) at the current average 6.7% mortgage rate would take on a monthly payment of roughly $2,600, a record high. That’s up more than $300 from a year ago and up more than $1,000 from three years ago, using the median sale price and average mortgage rates from those time periods, Redfin said
Nearly everyone has a mortgage rate below the one they would get if they bought a home today, but the difference in monthly payments varies. A mortgage holder in the 3% to 4% range is more likely to feel handcuffed to their home than someone in the 5% to 6% range, for instance.
More than half of (59.7%) homeowners with mortgages have lived in their home for four years or less, a record high and up from 47.3% during the fourth quarter of 2019, just before the pandemic began.
The portion of people who haven’t lived in their homes long has shot up because so many people bought homes during the pandemic, motivated by record-low mortgage rates and remote work. That means that even if rates were to drop significantly, it might not lead to a flood of new listings. Many people will likely stay put simply because they moved recently and aren’t in a hurry to do so again.
