82.8% of home owners have rates below 6%, fueling the "lock-in effect" where homeowners avoid selling due to higher current rates

A growing share of U.S. homeowners with mortgages are carrying interest rates of 6% or higher—the largest percentage since 2016—according to a new report from Redfin.

More Homeowners Facing Higher Rates

Nationwide, 17.2% of homeowners with mortgages now have an interest rate of at least 6%, a sharp increase from 12.3% in the third quarter of 2023. If this trend continues, the percentage of homeowners paying 6% or more could nearly double within the next three years.

“Homeowners hate to give up their 2-3% mortgage rate, but life happens, and people have to move,” said David Palmer, a Seattle-based real estate agent with Redfin Premier.

At the same time, 82.8% of mortgage-holding homeowners still have an interest rate below 6%. Many of these borrowers are paying significantly less than today’s average mortgage rate—6.95% as of January 30—which discourages them from selling and taking on a higher rate. This phenomenon, known as the “lock-in effect,” has contributed to the ongoing housing shortage by limiting the number of homes for sale.

The Lock-In Effect is Easing

However, the lock-in effect is slowly loosening. In mid-2022, a record 92.7% of mortgaged homeowners had rates below 6%, but by late 2023, that number had fallen to 87.7%. The shift is helping to ease the housing shortage, with both new and active listings increasing compared to a year ago.

Several factors are driving this change:

• Life events: Job changes, divorce, and other major life transitions are forcing some homeowners to move.
• Shifting expectations: Many Americans no longer anticipate mortgage rates will return to the historic lows of the pandemic.
• Home equity growth: Rising home values mean more homeowners can afford to sell and take on a higher rate, particularly if they’re downsizing or relocating to a more affordable area.
• More mortgage-free homeowners: An increasing share of Americans own their homes outright, making them unaffected by mortgage rates.

Mortgage Rate Breakdown

The percentage of homeowners locked into low mortgage rates has steadily declined as higher-rate purchases increase. Here’s how today’s mortgage holders break down:

• Below 6%: 82.8% (down from 92.7% in Q2 2022, the lowest share since late 2016)
• Below 5%: 73.3% (down from 85.6% in Q1 2022, the lowest share since 2017)
• Below 4%: 55.2% (down from 65.1% in Q1 2022, the lowest share since 2020)
• Below 3%: 21.3% (down from 24.6% in Q1 2022, the lowest share since 2021)

As more homeowners enter the market with rates above 6%, the era of ultra-low mortgage rates is fading. While many homeowners remain hesitant to sell, the easing lock-in effect is gradually shifting market dynamics.