Staying Put: 85% of Homeowners with Mortgages Have Rate Far Below Current Level

(Image courtesy KENS5-TV, San Antonio, Texas.)

With mortgage interest rates pushing well above 6 percent—even approaching 7 percent—a growing number of homeowners are reluctant to sell because they have a lower rate locked in, said Redfin, Seattle.

Redfin reported six of every seven (85%) U.S. homeowners with mortgages have a mortgage interest rate far below today’s level of 6.25%–many of them well below that. The high share of homeowners who feel locked into their low mortgage rate is contributing to a steep decline in the number of homes hitting the market. New listings slumped 19% year over year during the four weeks ending Sept. 11, the largest drop since May 2020.  

The Redfin analysis of Federal Housing Finance Agency data shows with rates now at the highest since the 2008 financial crisis, some of those homeowners are discouraged from moving because selling their home and buying another could mean giving up their low mortgage rate and taking on a larger monthly housing bill.

“The plunge in new listings is hindering growth in housing supply, which is keeping home prices relatively high even though the market is slowing down,” said Redfin Deputy Chief Economist Taylor Marr. “Housing supply fell 1% in August from the month before; normally, it would rise during a downturn.”

Redfin said this “lock-in” effect is manifesting in markets across the country. For example, in Atlanta, Chicago, Los Angeles and Washington, D.C., homeowners with a mortgage rate below 3.5% were 7.6% less likely to put their homes up for sale in August than homeowners with a rate above 3.5%.

Listings are also on the decline because many homeowners are hesitant to put their house up for sale at a time when the market is slowing and home prices are starting to fall in some areas. Some homeowners are opting to rent their properties out instead of selling to cash in on rising rents.

Rising rates have pushed the typical homebuyer’s monthly mortgage payment up 42% from a year ago, fueling a broad slowdown in the housing market.

“The good news is that people who already own homes have locked in relatively low mortgage payments,” Marr said. “The bad news is that homeownership is moving further out of reach for other folks as rising rates, elevated home prices and the persisting housing shortage make buying a house more expensive.”

In Utah, 93% of homeowners with mortgages have a mortgage rate below 5%—a higher share than any other state. Next comes Colorado (92%), Idaho (92%), Oregon (91%) and Montana (91%). Many parts of these states, including Salt Lake City and Boise, saw large increases in net domestic migration during the pandemic, when mortgage rates hit a record low. That may explain the relatively high share of homeowners with low rates.

Meanwhile, just 77% of homeowners with mortgages in West Virginia have a mortgage rate below 5%—the lowest share in the country. Rounding out the bottom five are Mississippi (78%), Louisiana (80%), New York (80%) and Oklahoma (82%).