Locked In: How High Mortgage Rates Keep Americans from Moving

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For many American families, the dream of upgrading to a new home feels increasingly out of reach. Sabrina Steward Koboldt of Edmond, Oklahoma, embodies this struggle. After planning to move before the pandemic, unforeseen health challenges shifted her priorities. Now, with her family of four—and a dog—crammed into a 1,500-square-foot house, the need for space is urgent.

“Our three bedrooms are all occupied, and we’ve had to move the office into the master bedroom due to space constraints,” she shares. Yet, with current mortgage rates hovering around 6.08%, Koboldt and her husband hesitate to make a move, especially since their existing mortgage, refinanced in 2019 at a favorable 3.75%, would lead to a payment more than double what they currently pay for a similar-sized home. “We’d love a bigger house with some land, but that’s not happening anytime soon.”

Koboldt's experience highlights a larger trend affecting homeowners across the country. A recent report from Realtor.com® reveals that despite the dip in mortgage rates to a two-year low, many potential sellers remain hesitant to enter the market.

The Lock-In Effect: A National Dilemma

According to Hannah Jones, a senior economist and author of the report, the "lock-in mortgage effect" is prevalent among homeowners who are reluctant to trade their low interest rates for new mortgages at higher rates. As of the second quarter of 2024, the data illustrates this phenomenon clearly:

• 21.6% of outstanding mortgages are below 3%
• 34.6% are between 3% and 4%
• 18.4% range from 4% to 5%
• 9.6% are between 5% and 6%
• 15.8% have rates of 6% or higher

This means that more than half of all outstanding mortgages carry rates below 4%, creating a situation where many homeowners feel they are shackled by "golden handcuffs," trapped in their current properties.

Historical Context and Future Outlook

Just four years ago, mortgage rates dropped below 3% during the height of the pandemic—a level not seen since 1971. This unprecedented period lasted for 14 months, allowing homeowners to secure historically low rates. However, as rates peaked at a 23-year high of 7.79% in October 2023, the landscape shifted dramatically.

Though the current rate of 6.08% is the lowest since September 2022, many homeowners are holding off on listing their properties, hoping for even lower rates. Brent Wells, broker and owner of LivingWell Realty in Celina, Texas, emphasizes the need for rates to fall to the mid-5% range to encourage sellers back into the market. “Most of our buyers need to sell to buy something else, and they are all locked in at 3% or 3.5% mortgages on their current home’s mortgage,” he notes. “You can put up with a lot of ugly at a 3% interest rate!”

Signs of Activity Amidst Hesitation

Despite the prevailing lock-in effect, activity in the housing market continues. There has been a notable increase in homeowners with mortgages at 6% or higher, suggesting that new borrowing is taking place. Jones notes that life events—such as marriages, births, and relocations—are still driving homebuying activity, ensuring that the market remains somewhat dynamic.

Interestingly, Realtor.com® identifies the current window—now through October 5—as an optimal time for buyers, highlighting lower-than-peak prices and potential cost-saving opportunities.

A February study reveals that 40% of potential buyers would consider purchasing if mortgage rates dipped below 6%, while 32% would be willing to buy if rates fell below 5%. Until those reductions happen, the housing supply remains constrained, keeping prices elevated, particularly in affordable neighborhoods where competition is fierce.

As the nation awaits further shifts in mortgage rates, the hope is that a decrease will incentivize both buyers and sellers to re-engage, ultimately invigorating the housing market and giving families like Koboldt's the space they desperately seek.