More than 90% of Homeowners Locked Into Sub-6% Mortgage Rates

Recent mortgage activity has largely lagged behind homeowner applications from a year ago, with low rates as the main culprit.

Almost 92 percent of homeowners with a mortgage have a rate below 6 percent, according to an analysis from Redfin. While that number is historically high, it’s more than a full percentage point below the peak reached in the middle of last year.

Plenty of homeowners are locked into even lower rates. More than 82 percent have a rate below 5 percent, 62 percent have a rate below 4 percent and even close to a quarter of mortgage owners have a rate below 3 percent.

Compare that to the 6.77 percent average rate recorded last week by the Mortgage Bankers Association and it’s easy to see why the housing market is at a virtual standstill. Buyers either can’t afford homes or their accompanying mortgage rates, while sellers don’t want to lose their favorable rates.

The stalemate isn’t likely to resolve soon, according to Redfin deputy chief economist Taylor Marr.

“The lock-in effect is unlikely to go away in the near future,” Marr said. “Mortgage rates probably won’t drop below 6 percent before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further.”

The report’s sentiment was the same aired by Compass CEO Robert Reffkin to Bloomberg Markets this week. The chief executive called the ultra-low mortgage rates of the early pandemic “handcuffs,” locking inventory away.

There could soon be a reprieve for homebuyers as the Federal Reserve finally pauses interest rate hikes, perhaps giving mortgage rates an opportunity to cool. Still, it’s no wonder assumable mortgages are becoming one of the hottest perks in housing.