• 03-22-24
  • 8:00 am

The lock-in effect has cost the housing market 1.3 million home sales and affected home prices, finds FHFA

"It looks like lock-in could be with us for a long time," write FHFA researchers.

[Photo: Sezeryadigar/iStock/Getty Images]
By Lance Lambert1 minute Read

Want more stories from Lance Lambert’s ResiClub in your inbox? Subscribe to the free, daily ResiClub newsletter.

This week, researchers at the Federal Housing Finance Agency (FHFA) published a 52-page working paper titled, The Lock-In Effect of Rising Mortgage Rates.

The FHFA analysis reveals that the lock-in effect—where homeowners with lower mortgage rates are unwilling to sell and purchase another home at significantly higher mortgage rates—has resulted in 1.3 million "lost" home sales between Q2 2022 and Q4 2023.

"People can be ‘locked-in’ or constrained in their ability to make appropriate financial changes, such as being unable to move homes, change jobs, sell stocks, rebalance portfolios, shift financial accounts, adjust insurance policies, transfer investment profits, or inherit wealth," the paper’s abstract notes. "In the United States, nearly all 50 million active mortgages have fixed rates, and most have interest rates far below prevailing market rates, creating a disincentive to sell. This paper finds that for every percentage point that market mortgage rates exceed the origination interest rate, the probability of sale is decreased by 18.1%. This mortgage rate lock-in led to a 57% reduction in home sales with fixed-rate mortgages in 2023Q4 and prevented 1.33 million sales between [Q2 2022 and Q4 2023]."

Not only has the lock-in effect cost the housing market 1.3 million home sales, but FHFA researchers find it has also put upward pressure on national home prices.

"The supply reduction [created by the lock-in effect] increased [national] home prices by 5.7%, outweighing the direct impact of elevated [mortgage] rates, which decreased prices by 3.3%. These findings underscore how mortgage rate lock-in restricts mobility, results in people not living in homes they would prefer, inflates prices, and worsens affordability. Certain borrower groups with lower wealth accumulation are less able to strategically time their sales, worsening inequality," wrote the FHFA researchers.

While new listings in February 2024 were still far below February 2019, they’re up slightly on a year-over-year basis. That suggests the lock-in effect could be easing.


So, is the lock-in almost over? The analysis by FHFA researchers says no.

"Absent a dramatic decrease in [mortgage] rates, it looks like lock-in could be with us for a long time," wrote FHFA researchers.

Today's trending stories, delivered to you daily.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

About the author

Lance Lambert is the co-founder and editor of ResiClub, a media and research company dedicated to in-depth tracking, reporting, and analysis of regional housing markets. Lambert, the former real estate editor of Fortune Magazine, has solidified his reputation as the nation's foremost data journalist and beat reporter in the residential real estate space