Mortgage lock-in effect drives homeowners to hold onto their homes longer
The housing market is experiencing its lowest turnover rate in at least 30 years, according to a new report by Redfin.
Just 25 out of every 1,000 homes changed hands in the first eight months of 2024, marking a significant drop in sales activity. Redfin, which analyzed housing turnover across various metro areas and property types, attributes this trend to a combination of factors, including elevated mortgage rates, rising home prices, and lingering economic uncertainty.
The current turnover rate represents a 37.5% decline compared to the pandemic buying frenzy of 2021, when 40 out of every 1,000 homes were sold. The drop is also 31% lower than in 2019, the last pre-pandemic year, when 36 out of every 1,000 homes changed hands.
“Mortgage rates have already fallen more than one percentage point from their 2024 peak, but we have not yet seen a significant increase in the number of homes changing hands,” said Redfin senior economist Elijah de la Campa.
A key reason for the decline in sales is the "lock-in effect," where homeowners with low mortgage rates are hesitant to sell their homes and buy new ones at higher rates.
More than three-quarters of homeowners have locked in mortgage rates below 5%, while rates peaked at 7.52% earlier this year. While mortgage rates have dipped into the low 6% range, they haven’t yet encouraged a significant increase in home sales.
“With the majority of homeowners locked into low mortgages, rates will need to keep falling consistently for many to feel comfortable moving on from the deals they secured years ago,” de la Campa said.
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US home prices have also hit record highs, with buyer demand just strong enough to keep prices rising. However, the number of homes listed for sale remains well below pre-pandemic levels. Adding to the uncertainty are broader economic and political factors, including fears of a potential recession and the upcoming presidential election, which have caused both buyers and sellers to adopt a wait-and-see approach.
The report also revealed that listings are at their lowest level in over a decade. In the first eight months of 2024, only 32 out of every 1,000 homes were listed for sale. This marked a 30% decline from 2019, when 46 out of every 1,000 homes were listed, and a 29% drop from the pandemic-driven boom in 2021, when 45 homes per 1,000 were listed.
“Of the homes listed this year, many have gone stale because of the lack of demand – especially homes which needed a little extra work,” de la Campa noted in Redfin’s report.
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