Key facts
- The average mortgage rate delta was -2.54 percentage points in Q2 2024.
- The lock-in effect has reduced housing sales by an estimated 1.72 million since Q2 2022.
- The lock-in effect has increased home prices by an estimated 7.0%.
- The top five MSAs with the highest lock-in exposure are in California.
- Affluent borrowers and non-white borrowers show higher sensitivity to lock-in.
The "lock-in" effect, where homeowners with low fixed-rate mortgages are disincentivized from selling due to current higher rates, may be slightly easing, according to a revised FHFA working paper. As of the second quarter of 2024, the average loan has a fixed rate that is 2.54 percentage points lower than current market rates for similar loans. This difference has slightly decreased since the fourth quarter of 2023, when it was over three percentage points.
The phenomenon, unprecedented in recent history, has restricted housing supply and contributed to upward pressure on home prices. The FHFA paper estimates that the lock-in effect prevented 1.72 million fewer sales between the second quarter of 2022 and the second quarter of 2024. This supply restriction has increased home prices by an estimated 7.0%, counteracting the direct effect of higher interest rates, which decreased prices by an estimated 5.6%.
The paper also found that lock-in exposure differs across cities, with the top five Metropolitan Statistical Areas (MSAs) with the highest exposure all located in California. These areas include San Jose-Sunnyvale-Santa Clara, San Francisco-Oakland-Fremont, Oxnard-Thousand Oaks-Ventura, San Diego-Chula Vista-Carlsbad, and San Luis Obispo-Paso Robles. The study also indicates that affluent borrowers and non-white borrowers are more sensitive to lock-in, with some MSAs like Rockford, IL, and Oxnard-Thousand Oaks-Ventura, CA, showing high sensitivity.