• 03-12-24

The housing market’s lock-in effect continues to ease

Here’s what the latest housing inventory data from Realtor.com says about the state of the housing market.

[Photo: Alexander Andrews/Unsplash]
By Lance Lambert2 minute Read

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Faced with rising mortgage rates, many homeowners have opted to stay in their current homes rather than selling and taking on a higher monthly payment. In December, data began to suggest that the peak "lock-in effect" was behind us. Fast-forward to today, and the evidence is even stronger.

New data from Realtor.com indicates there were 339,370 new homes for sale last month. This represents an 11% increase compared to February 2023, when there were 304,868 new listings. However, it’s important to note that this figure is still 17% below the levels seen in February 2019, when there were 409,934 new listings.

In simple terms, while the lock-in effect is easing, it hasn’t completely dissipated.

The reason that new listings still remain suppressed boils down to "switching costs." Spiked mortgage rates have made the prospect of trading in a lower monthly payment/lower mortgage rate for a substantially higher one a daunting financial challenge. This financial burden, coupled with the psychological aspects of the change, has contributed to a reluctance among homeowners to list their properties for sale.

However, as time goes on, life events such as expanding families or other significant changes can act as catalysts in reducing so-called switching costs. Some people will simply get tired of waiting for mortgage rates to fall, and will move on with their lives.

Big picture for new listings: The lock-in effect is easing a bit as the initial mortgage-rate shock recedes in the rearview mirror, and as some homeowners come to terms with the fact that their life circumstances have changed and that sub-4% mortgage rates aren’t returning anytime soon.

When ResiClub discusses the "lock-in effect," we’re referring to the phenomenon in which strained affordability and spiked mortgage rates have suppressed new listings (as seen in the two charts above).

When assessing current home pricing trends, we believe it’s more prudent to monitor total active listings and months of supply. If active listings start to increase as homes remain on the market for longer periods, it may indicate potential future pricing weakness. Conversely, a rapid decline in active listings could suggest a market that is heating up.

The fact that there isn’t an excessive amount of existing inventory on the national market is a core reason why spiked mortgage rates and strained affordability haven’t translated into more regional home price corrections.

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In February 2024, there were 664,716 active listings on Realtor.com. That’s 15% above February 2023 (579,264 active listings), and 91% above housing boom times in February 2022 (346,511 active listings) when many homes were selling so fast they weren’t even being registered as inventory.

But it’s still well below pre-pandemic levels: Active listings in February 2024 were 40% below February 2019 levels when there were 1,102,660 U.S. homes for sale.

Big picture for active listings: While active listing levels are rising year over year, national inventory levels still remain well below pre-pandemic levels. This suggests we’re witnessing more of a balancing housing market than a crashing one.

At a regional level, inventory trends vary greatly. Some markets are so tight, like Hartford, Connecticut, that home price growth remains elevated, while other pockets are experiencing significant inventory jumps, indicating potential future pricing softness.

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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