Redfin Report: 89% of People With Mortgages Have an Interest Rate Below 6%, Down From a Record 93% in 2022

Rhea-AI Summary

Redfin (RDFN) reports that the share of U.S. homeowners with mortgages below 6% interest rates has fallen from a record high of 92.8% in mid-2022 to 88.5%. This is attributed to the 'lock-in effect,' prompting many to stay put instead of selling and buying another home at a higher rate. The lock-in effect continues to fuel America’s housing shortage, but listings have started to tick up due to various factors such as homeowners needing to move, rising mortgage rates, and the fact that home prices soared during the pandemic.

Economist

The recent shift in the percentage of homeowners with mortgage rates below 6% has implications on housing market dynamics and the broader economy. The decrease from 92.8% to 88.5% may appear modest but signals a notable change in homeowner behavior. The 'lock-in effect' is a key factor contributing to the ongoing housing shortage, as it disincentivizes selling due to the prospect of higher mortgage rates. This phenomenon can lead to reduced housing mobility, impacting labor market flexibility and potentially slowing economic growth as workers are less able to relocate for employment opportunities.

Additionally, the uptick in listings, despite the lock-in effect, suggests a shift in market sentiment as homeowners adjust to the new reality of higher interest rates. The slight reduction in rates from the peak of 8% could be providing the necessary psychological and financial impetus for homeowners to sell. However, the sustainability of this trend is contingent on future interest rate movements and economic conditions.

From a macroeconomic perspective, these trends are critical to monitor as they affect consumer spending, home construction and financial markets. A prolonged housing shortage can lead to increased prices, affecting affordability and potentially leading to a slowdown in the real estate market, which has ripple effects on the overall economy.

Market Research Analyst

The report indicating a decline in homeowners with sub-6% mortgage rates offers valuable insights into consumer behavior and the real estate market's trajectory. The increase in listings, despite the lock-in effect, suggests a gradual market recalibration. Homeowners seem to be adapting to the higher-rate environment, possibly indicating a pent-up demand for housing changes due to life events that override financial disincentives.

Market trends show that while the lock-in effect contributes to the housing shortage, the recent trend of rising listings could alleviate some of the supply constraints. However, the increase in supply may not necessarily lead to a proportionate decrease in home prices due to the persistent demand and the significant equity accumulated by many homeowners during the pandemic housing boom.

For stakeholders, including real estate companies, investors and policymakers, these insights are crucial for strategic decision-making. Real estate companies might adjust their marketing and sales strategies to target homeowners who are more likely to sell despite higher rates. Investors in real estate or related securities should consider the potential for increased market activity and its implications on real estate values and investment returns.

Financial Analyst

The shift in homeowners' mortgage rates is a significant indicator for financial markets, particularly for sectors tied to housing and consumer finance. The report's findings could influence investor sentiment toward mortgage lenders, homebuilders and real estate service providers. A higher proportion of homeowners with rates above 6% could lead to decreased refinancing activity, affecting the revenue streams of mortgage financiers.

Furthermore, the potential increase in home listings, if sustained, may signal a gradual normalization of the housing market. This could have mixed effects on the stock market, potentially benefiting companies that thrive on higher transaction volumes, such as real estate brokerages and home improvement retailers, while presenting challenges for entities that rely on low interest rates to drive business.

Investors should monitor this trend closely, as an increase in housing inventory could eventually put downward pressure on home prices, affecting the valuation of real estate assets within investment portfolios. The long-term impact on the stock market will largely depend on the interplay between housing supply, interest rates and consumer confidence.

The share of homeowners with relatively low rates has fallen because some have given up on waiting to move until rates nosedive, and everyone who has purchased a home in the last year did so when rates were above 6%

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Nationwide, 88.5% of U.S. homeowners with mortgages have an interest rate below 6%, down from a record high of 92.8% in mid-2022, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

That means more than 88.5% of homeowners with mortgages have a rate below the current weekly average of 6.66%, prompting many to stay put instead of selling and buying another home at a higher rate—a phenomenon called the “lock-in effect.”

But for most people, it’s not realistic to stay put forever. The share of homeowners with a rate below 6% has fallen from its record high partly because 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 divorce has given them no other choice, while others are putting their homes on the market because they want to live in a different house or city.

Another reason the share has dipped: Everyone who purchased a home in the last year—repeat buyers and first-time buyers alike—was entering the market at a time when the average mortgage rate was above 6%.

“I’m working with a lot of homeowners who are selling because of things like divorces, new jobs or deaths in the family,” said David Palmer, a Redfin Premier real estate agent in Seattle.

“I’m also working with homeowners who are bursting at the seams and selling because they’ve outgrown their current home.”

It’s worth noting that for some homeowners, the fact that home prices soared during the pandemic means they have enough equity to justify selling and taking on a higher rate—especially if they’re downsizing or moving somewhere more affordable.

The Lock-In Effect Continues to Fuel America’s Housing Shortage, But Listings Have Started to Tick Up

Americans continue to face a shortage of homes for sale, and a primary reason is the lock-in effect.

But home listings have been ticking up year over year, in part because some homeowners simply have to move, as discussed above. Listings are also rising because mortgage rates have fallen enough in recent weeks to convince some homeowners to let go of their low rate. Today’s 6.66% average mortgage rate is down from a peak of roughly 8% in October.

“Sellers have started coming out of the woodwork because that’s typical for January and because mortgage rates have dropped,” Palmer said. “They’re also coming to terms with the fact that rates aren’t going back down to 3% any time soon, which makes it easier to pull the trigger on selling. But a lot of sellers are worried about finding their next house because even though listings are rising, there’s still a housing shortage. That’s part of the reason so many sellers remain on the sidelines.”

Breakdown of where today’s homeowners fall on the mortgage-rate spectrum

The following is according to a Redfin analysis of data from the Federal Housing Finance Agency’s National Mortgage Database as of the third quarter of 2023, the most recent period for which data is available. The share of homeowners with rates below 6% likely fell further in the fourth quarter because a dip in mortgage rates drove more people to buy and sell homes, even as rates remained above 6%.

• Below 6%: 88.5% of mortgaged U.S. homeowners have a rate below 6%, down from a record 92.8% in the second quarter of 2022.
• Below 5%: 78.7% have a rate below 5%, down from a record 85.6% in the first quarter of 2022.
• Below 4%: 59.4% have a rate below 4%, down from a record 65.3% in the first quarter of 2022.
• Below 3%: 22.6% have a rate below 3%, down from a record 24.6% in the first quarter of 2022.

Mortgage Rates Have Dipped, But It’s Still More Expensive to Buy and Sell Homes Than It Was a Year Ago

The typical homebuyer purchasing today’s median-priced U.S. home at the average mortgage rate takes on a monthly payment of $2,399. While that’s down more than $300 from the all-time high in 2022, it’s still up 7.4% from a year ago. That’s because both mortgage rates and home prices are higher than they were at this time last year.

Nearly all homeowners with a mortgage have a rate below the one they would get if they bought a home today, but the difference in monthly payments varies depending on each individual situation. A mortgage holder in the 3% to 4% range is more likely to feel handcuffed to their home than someone in the 5% to 6% range, for instance.

To view the full report, please visit:
https://www.redfin.com/news/mortgage-rate-lock-in-housing-2023

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240112967377/en/

Contact Redfin

Redfin Journalist Services:

Angela Cherry, 913-638-8249

press@redfin.com

Source: Redfin

FAQ

What percentage of U.S. homeowners have an interest rate below 6%?

According to Redfin's report, 88.5% of U.S. homeowners with mortgages have an interest rate below 6%, down from a record high of 92.8% in mid-2022.

What is the average weekly mortgage rate mentioned in the press release?

The current weekly average mortgage rate is 6.66%.

What is the 'lock-in effect'?

The 'lock-in effect' refers to homeowners staying put instead of selling and buying another home at a higher rate due to the current mortgage rates.

Why are home listings rising?

Home listings are rising due to factors such as homeowners needing to move, falling mortgage rates, and the fact that home prices soared during the pandemic.