State of the Rate MABA MassachusettsRealEstate FirstTimeHomeBuyers MaBuyerAgent

In a new analysis by Redfin, eighty five point seven percent of U.S. homeowners with mortgages have an interest rate below six percent, down from ninety point six percent at the start of last year, and a record high of ninety two point eight percent in mid-2022. This means even more than eighty five point seven  of homeowners with mortgages have a rate below the current weekly average of six point forty six percent, prompting many to stay put instead of selling and buying another home at a higher rate a phenomenon called the “lock-in effect.”

To determine the percentage of rate holders, 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, which found:

• Below six to seven percent of mortgaged U.S. homeowners have a rate below six percent, down from a record ninety two point eight percent in the second quarter of 2022.
• Below five to one percent have a rate below five percent, down from a record eighty five point six percent in the first quarter of 2022.
• Below four to four percent have a rate below four percent, down from a record sixty five point three percent in the first quarter of 2022.
• Below three to twenty two percent have a rate below three percent, down from a record twenty four point seven percent 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 three percent 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 five percent.”

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 six percent 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 is that everyone who purchased a home in the last year was entering the market at a time when the average mortgage rate was above six percent.

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. Freddie Mac in its latest Primary Mortgage Market Survey (PMMS), shows the thirty year fixed-rate mortgage (FRM) at six point forty six percent, lower than the seven point twenty three percent average of a year ago, but still significantly higher than the two point sixty five percent 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 Federal Open Market Committee (FOMC) 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.

The post State of the Rate first appeared on The MortgagePoint.

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