Is the ‘Lock-In Effect’ the Only Reason Home Sales Have Stalled?


One of the primary reasons home sales have stalled in 2023 is rising mortgage interest rates. 

With the average rate for a 30-year fixed-rate mortgage currently approaching 8%, many prospective home buyers – especially for first-time home buyers – are finding that they are essentially priced-out of the market.

More significantly, higher rates are keeping existing homeowners “locked in” to their current mortgages – and homes. Because most mortgage borrowers are currently locked into rates between 3% and 5%, they have no financial incentive to sell their homes and get locked into a much higher current rate.

As a result, supply of existing homes has become severely restricted – to the point where supply cannot meet demand. And as a result of that, home prices continue to rise.

But a new post on Fannie Mae’s Perspectives Blog says there are other factors keeping existing-home owners from listing their properties – beyond the “rate-lock” factor.

“This year, while new home sales have rebounded, the paucity of existing home sales has persisted, declining from a peak annualized sales pace of 6.6 million units in January 2021 to 4.0 million annualized in August 2023,” writes Mark Palim, vice president and deputy chief economist for Fannie Mae, and Rachel Zimmerman, market research advisor, national housing survey lead, in the post. “In fact, as of August, the number of existing homes for sale hovered around 1.1 million, 40 percent below the level seen in August 2019, pre-pandemic. As of this writing, in 2023, the 30-year fixed-rate mortgage is at 7.79 percent, more than one full percentage point above where they were at the end of 2022.”

Recent research reveals that most existing homeowners “plan to stay in their home longer than originally intended.”

“While mortgage borrowers indicated that being ‘locked-in’ to a low mortgage rate was the leading reason for staying longer in their homes (21%), there were other reasons close behind, including that they like their current home (19%) and that home prices are too high to buy another home (13%),” the post states.

“These findings, as well as others from the survey, indicate that there is more to the decline in existing homes for sale than just the lock-in effect,” the authors write.

Other top reasons why existing homeowners will likely stay longer in their homes include ”I like the home/location” at 19%, “home prices are too high to buy” at 13% and “my job and family are located here” at 13%, according to Fannie Mae’s research.

The authors conclude that a “confluence of factors” are contributing to the lack of existing home sales – and that the “lock-in effect” is “one of several.”

“For more homeowners to be incentivized to put their homes on the market, other factors beyond mortgage rates may have to change, such as older generations aging out of their homes,” the authors write. “As it stands now, and given these results, even if mortgage rates were to decline meaningfully in the intermediate term, we would not expect to see a surge in home listings.”

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