Is the “Lock-In Effect” keeping you stuck?

I wanted to share some significant findings from a recent study conducted by the Federal Housing Finance Agency (FHFA) regarding the lock-in effect of rising mortgage rates on the U.S. housing market.

Table of Contents

• Overview of the Lock-In Effect:

• Regional Impact Analysis:

• Economic Implications:

• Current and Future Outlook:

Overview of the Lock-In Effect:

In March, the FHFA released a comprehensive 52-page working paper analyzing how homeowners with lower mortgage rates are reluctant to sell due to the prospect of higher rates on new mortgages. This phenomenon, known as the rate lock-in effect, has resulted in approximately 1.3 million "lost" existing home sales from Q2 2022 to Q4 2023.

Regional Impact Analysis:

The lock-in effect has uniformly affected every housing market across the nation. States with large populations like California, Texas, and Florida have seen significant impacts, with lost sales numbering in the hundreds of thousands. Utah has lost 28,000 over this time period respectively.

Economic Implications:

The study reveals that for every percentage point increase in mortgage rates above the origination rate, the likelihood of home sales decreases by 18.1%, leading to a 57% reduction in home sales with fixed-rate mortgages in Q4 2023. This trend not only restricts mobility and limits housing availability but also inadvertently inflates home prices. Despite the reduced housing supply increasing national home prices by 5.7%, high mortgage rates have conversely lowered prices by 3.3%.

Current and Future Outlook:

Despite a slight year-over-year increase in new listings, the lock-in effect is expected to persist unless there is a substantial decrease in mortgage rates. FHFA researchers predict that without dramatic rate reductions, the lock-in effect could continue to influence the market significantly.

Given these trends, I'm curious about how this might be affecting you personally or professionally. Are you finding these conditions to be a barrier to buying or selling property? Any observations or experiences you could share would be incredibly insightful. We may be able to brainstorm some ideas to get you out of this situation if you find yourself affected by it…

Please let me know if you have any questions or would like further information on this topic.

Best regards,