Redfin Reports 6 of Every 7 People With Mortgages Have an Interest Rate Below 6%

Rhea-AI Summary

Redfin reports that 85.7% of U.S. homeowners with mortgages have an interest rate below 6%, down from 90.6% at the start of last year and a record high of 92.8% in mid-2022. This 'lock-in effect' is contributing to America's housing shortage as homeowners hesitate to sell and buy at higher rates. The breakdown shows:

• 76.1% have a rate below 5%
• 57.4% have a rate below 4%
• 22% have a rate below 3%

The lock-in effect is easing slightly as some homeowners are forced to move due to life events or have enough equity to justify selling. The current average weekly mortgage rate is 6.46%, the lowest in 15 months, but still significantly higher than the pandemic-era low of 2.65%.

Positive

• 85.7% of U.S. homeowners with mortgages have an interest rate below 6%, indicating a strong position for many homeowners
• Current average weekly mortgage rate of 6.46% is the lowest in 15 months
• Federal Reserve is expected to start cutting interest rates at its next policy meeting on September 18

Negative

• The 'lock-in effect' is contributing to a shortage of homes for sale, with new listings at the lowest level in a year
• The share of homeowners with rates below 6% has decreased from 90.6% at the start of last year
• Current mortgage rates are still significantly higher than the 2.65% record low hit during the pandemic

Insights

Financial Analyst

The report reveals a gradual easing of the mortgage rate lock-in effect, with 85.7% of U.S. homeowners now having rates below 6%, down from 92.8% in mid-2022. This shift is crucial for the housing market's liquidity and could potentially increase inventory. However, the 3% to 6% rate gap remains a significant deterrent for many homeowners considering selling.

The declining share of low-rate mortgages suggests a slow but steady market adjustment. This could lead to increased housing supply, potentially easing price pressures. However, the persistently high proportion of sub-6% mortgages (85.7%) indicates that the market is still far from normalizing, which could continue to constrain supply and support home prices in the near term.

Investors should monitor this trend closely, as it impacts housing market dynamics, construction sector activity and related industries. The potential for increased market activity if rates continue to decline could present opportunities in real estate and home improvement sectors.

Market Research Analyst

This report underscores a critical shift in housing market dynamics. The gradual decrease in homeowners with sub-6% mortgage rates from 92.8% to 85.7% signals a potential increase in housing inventory. However, this change is occurring at a glacial pace, indicating that the market remains far from equilibrium.

The data revealing that 22% of homeowners still have rates below 3% highlights the persistence of the lock-in effect. This continued constraint on supply could maintain upward pressure on home prices, particularly in desirable areas. The report also suggests a threshold of around 5% interest rates that might trigger increased listing activity, providing a key indicator for market participants to watch.

For investors, this evolving landscape presents both challenges and opportunities. The potential for increased market activity as rates decline could benefit real estate-related stocks, while the persistent supply constraints might support homebuilders focused on new construction.

Real Estate Expert

The gradual easing of the mortgage rate lock-in effect presents a nuanced picture for the real estate market. While the decrease in homeowners with sub-6% rates from 92.8% to 85.7% is promising, it's important to note that this still represents a vast majority of mortgaged homeowners. This continued constraint on housing supply is likely to support home prices in the near term, particularly in desirable areas with new construction.

The report's mention of homeowners potentially listing if rates return to 5% provides a crucial benchmark for market participants. This suggests that even a moderate decrease in rates could trigger a significant increase in inventory, potentially leading to a more balanced market. However, the current average rate of 6.46% indicates that we're still a considerable distance from this tipping point.

Investors should closely monitor both interest rate trends and the pace of new listings, as these factors will be critical in determining the direction of the housing market in the coming months.

The mortgage rate lock-in effect is prompting many homeowners to stay put, contributing to America’s housing shortage, but it’s starting to ease

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —Nationwide, 85.7% of U.S. homeowners with mortgages have an interest rate below 6%, down from 90.6% at the start of last year and a record high of 92.8% in mid-2022. That’s according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

This means even more than 85.7% of homeowners with mortgages have a rate below the current weekly average of 6.46%, prompting many to stay put instead of selling and buying another home at a higher rate—a phenomenon called the “lock-in effect.”

Redfin analyzed data from the Federal Housing Finance Agency’s National Mortgage Database as of the first quarter of 2024, the most recent period for which data is available.

Here’s the full breakdown of where today’s homeowners fall on the mortgage-rate spectrum:

• Below 6%: 85.7% of mortgaged U.S. homeowners have a rate below 6%, down from a record 92.8% in the second quarter of 2022.
• Below 5%: 76.1% have a rate below 5%, down from a record 85.6% in the first quarter of 2022.
• Below 4%: 57.4% have a rate below 4%, down from a record 65.3% in the first quarter of 2022.
• Below 3%: 22% have a rate below 3%, down from a record 24.7% in the first quarter of 2022.

“I have a dozen or so homeowners who would like to sell, but aren’t willing to give up their 3% interest rate for one that’s more than twice as high,” said Blakely Minton, a Redfin Premier real estate agent in Philadelphia. “Many of those sellers will list if rates get back down to 5%.”

The lock-in effect is fueling a shortage of homes for sale; new listings were at the lowest level in a year last month. But for most people, it’s not realistic to stay put forever, which is why the share of homeowners with rates below 6% is inching down. Some homeowners are opting to bite the bullet and give up their low rate in order to move. Many are selling because a major life event like a job change or divorce has given them no other choice.

Another reason the share of locked-in homeowners has dipped: Everyone who purchased a home in the last year was entering the market at a time when the average mortgage rate was above 6%.

It’s worth noting that for some homeowners, the pandemic surge in home values means they have enough equity to justify selling and taking on a higher rate—especially if they’re downsizing or moving somewhere more affordable. It’s also worth noting that while many homeowners remain locked into their low mortgage rates, a rising share of Americans are mortgage-free.

Mortgage rates have declined in recent weeks, causing homebuyer mortgage payments to fall for the first time since 2020. The current average weekly mortgage rate (6.46%) is the lowest in 15 months, but still significantly higher than the 2.65% record low hit during the pandemic.

With inflation on the decline, the Federal Reserve is now expected to start cutting interest rates at its next policy meeting on September 18. But the size and pace will depend on incoming economic data, particularly labor market data. Markets have now priced in aggressive expectations for how quickly the Fed will cut. If the Fed ends up cutting slower than markets anticipate, mortgage rates may rise a bit.

To view the full report, including a chart and methodology, please visit: https://www.redfin.com/news/mortgage-rate-lock-in-housing-2024

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240827757562/en/

Redfin Journalist Services:

Ally Forsell, 206-588-6863

press@redfin.com

Source: Redfin

FAQ

What percentage of U.S. homeowners with mortgages have an interest rate below 6% according to Redfin's report?

According to Redfin's report, 85.7% of U.S. homeowners with mortgages have an interest rate below 6%.

How has the 'lock-in effect' impacted the housing market for Redfin (RDFN)?

The 'lock-in effect' has contributed to a shortage of homes for sale, as many homeowners are hesitant to sell their properties and give up their low mortgage rates.

What is the current average weekly mortgage rate as reported by Redfin (RDFN) in 2024?

The current average weekly mortgage rate is 6.46%, which is the lowest in 15 months according to Redfin's report.

When is the Federal Reserve expected to start cutting interest rates according to Redfin's (RDFN) report?

The Federal Reserve is expected to start cutting interest rates at its next policy meeting on September 18, 2024.