22. What is the mortgage lock-in effect, and when will it end?

Short answer: The lock-in effect is when homeowners stay put because selling would mean trading a low-rate mortgage for a much more expensive one. It has held down resale listings since rates jumped in 2022. It is easing slowly, as owners move for job changes and family needs and as more owners carry higher-rate loans. It won’t end until new mortgage rates get much closer to what existing owners already pay.

• Nearly half of mortgaged owners (49.1%) still have a rate below 4%, and 19.2% are below 3% (FHFA, Q2-2026).

• The average rate on outstanding mortgages is about 4.4%. New 30-year loans averaged 7.40% in mid-October (Freddie Mac), a gap of roughly 3 points.

• The gap is real money. On a $400,000 loan, principal and interest run about $1,690 a month at 3% and about $2,770 at 7.4%.

• Listings are recovering anyway. Existing-home inventory is up 5.9% from a year ago (NAR, August).

  
  

When will it end?

The lock-in is fading, but slowly. The share of mortgages below 4% peaked at 65% in early 2022 and has fallen only to 49% since then. That is a drop of about 16 percentage points, roughly a quarter, in four years.

Rates climbing back above 7% this fall will slow that progress further. A real thaw needs one of two things:

• Mortgage rates fall into the low 6s or below, or

• Enough owners turn over their loans to push the average outstanding rate up.

Either way, the gap between new and existing rates has to narrow a lot. Until then, expect listings to rise gradually, driven mostly by life events rather than a wave of sellers.