Find out how many homeowners still cling to mortgage rates below 6%
The share of homeowners with interest rates below 6% has been gradually decreasing as more people find themselves needing to move, even if it means giving up their favorable rates.
About six out of every seven homeowners with mortgages (85.7%) have locked in rates under 6%, according to a new report from Redfin. This percentage has decreased from 90.6% at the start of last year and a record high of 92.8% in mid-2022.
The decline indicates a slight easing of the “lock-in effect,” where homeowners stay put to avoid higher mortgage rates on a new home purchase. Redfin’s analysis shows that most homeowners are still benefiting from rates significantly lower than the current weekly average of 6.46%.
As a result, many are reluctant to sell their homes and purchase new ones at the higher rates now available in the market. However, the effect continues to contribute to a shortage of homes for sale, with new listings reaching their lowest level in a year last month.
“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 report, based on data from the Federal Housing Finance Agency’s National Mortgage Database, provides a breakdown of homeowners’ mortgage rates:
- 76.1% have a rate below 5%, down from a record 85.6% in Q1 2022
- 57.4% have a rate below 4%, down from a record 65.3% in Q1 2022
- 22% have a rate below 3%, down from a record 24.7% in Q1 2022
While many homeowners are still benefiting from historically low rates, life circumstances such as job changes, family needs, or downsizing are pushing some to sell and take on higher rates, even if it means giving up the advantage of a lower mortgage payment.
For some homeowners, the equity built up during the pandemic-driven surge in home values is enough to justify selling and accepting a higher interest rate, particularly if they are downsizing or moving to a more affordable area.
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Another trend noted in the report is the increasing number of Americans who are mortgage-free, a factor that could influence the housing market differently as interest rates fluctuate.
While mortgage rates have recently declined, causing a slight reduction in homebuyer mortgage payments for the first time since 2020, they remain significantly higher than the record low of 2.65% reached during the pandemic.
The current average rate of 6.46% is the lowest in 15 months, but still much higher than that which many homeowners locked in 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,” Redfin wrote. “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.”
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