A significant shift is underway in the U.S. housing market, signaling a potential thaw in the inventory freeze that has gripped the nation. For the first time since the pandemic-era boom, the number of American homeowners with mortgage rates above 6% has surpassed those locked into the coveted sub-3% rates, according to new analysis.
This development suggests the powerful "mortgage rate lock-in effect," which has kept homeowners from selling, may be starting to weaken. The change could eventually lead to more homes hitting the market, offering a glimmer of hope for frustrated buyers.
Key Takeaways
- The share of U.S. mortgages with rates of 6% or higher has grown to approximately 20% as of late 2025.
- This group of homeowners now outnumbers those with pandemic-era mortgage rates below 3%.
- This shift could weaken the "lock-in effect," where owners are reluctant to sell and lose their low rates.
- Housing affordability remains a major challenge, with 75% of homes out of reach for the typical household.
The End of an Era for Low Rates
During the height of the pandemic, historically low interest rates allowed millions of Americans to buy homes or refinance with mortgages below 3%. This created a unique economic situation where homeowners were financially discouraged from moving as rates later climbed into the 6% and 7% range.
This phenomenon, known as the "lock-in effect," severely restricted the number of available homes for sale. With fewer properties on the market, competition intensified, driving up prices and pushing many potential buyers to the sidelines.
What is the 'Lock-In Effect'?
The mortgage rate lock-in effect occurs when existing homeowners have interest rates significantly lower than current market rates. They become hesitant to sell their homes because doing so would mean taking on a new mortgage with a much higher monthly payment, even for a similarly priced property. This dynamic reduces housing inventory and can stifle market activity.
However, new data shows this landscape is changing. An analysis of Fannie Mae's mortgage database by Nick Gerli, CEO of Reventure, reveals a critical crossover. The share of mortgages with rates of 6% or higher has surged from just 7% in 2022 to roughly 20% by the end of 2025.
Meanwhile, the share of loans with sub-3% rates, which peaked at nearly 25% of all mortgages in 2021, has been steadily declining. "Something big just happened in the U.S. Housing Market," Gerli noted, explaining that the dreaded lock-in effect is now fading.
More Sellers Could Emerge
The logic behind this potential market shift is straightforward. As more homeowners hold mortgages with rates closer to the current market average, the financial penalty for moving decreases.
"Since more existing owners have a higher rate, that means more have a payment and rate closer to ‘market’,” Gerli explained. This alignment reduces the disincentive to sell, which he believes is "actually good news" for housing supply.
This change is driven by the natural churn of the market. "Even in today’s depressed sales and refinance environment, each year about 5-6 million Americans take out a new mortgage, now at 6%+ rates," Gerli added. This constant influx of higher-rate loans has gradually shifted the overall balance.
40% of Homeowners Are Mortgage-Free: A significant portion of the market is unaffected by interest rates. The share of homeowners who own their property outright rose to 40% in 2023, up from 33% in 2010. These equity-rich households often compete with first-time buyers using all-cash offers.
While mortgage rates have retreated from their peak of 8% in October 2023, they remain well above the pandemic lows. Experts caution that a return to sub-3% rates is highly improbable without another major global event.
"The circumstances that lead to rates the sub-3% of 2020-2021 past were a worldwide, once-in-a-lifetime (hopefully) pandemic," Max Slyusarchuk, CEO of A&D Mortgage, stated recently.
Even so, Gerli argues that a sustained period of rates below 6% could be enough to encourage more owners to list their properties, creating "upward pressure on new listings and inventory in future years."
The Unwavering Affordability Crisis
Despite the positive signs for inventory, the path to homeownership remains difficult for many Americans. The combination of high prices and elevated mortgage rates has created a severe affordability gap.
A recent analysis from Bankrate found that more than 75% of homes on the market are unaffordable for a household earning the typical income. The average American salary is about $64,000, yet a six-figure income is now needed to comfortably afford a median-priced home in most areas.
This financial strain has had a tangible impact, particularly on younger generations. The average age of a first-time homebuyer has climbed to 40, according to the National Association of Realtors (NAR), while their share of the market has fallen to a record low of 21%.
"The historically low share of first-time buyers underscores the real-world consequences of a housing market starved for affordable inventory," said Jessica Lautz, NAR's deputy chief economist.
The crisis has forced many to reconsider their dream of owning a home. One in six aspiring homeowners has given up on their search in the last five years, according to a separate Bankrate report.
What Would It Take to Fix Affordability?
Analysts suggest that restoring widespread housing affordability would require a dramatic economic shift. A recent analysis based on Realtor.com data identified three unlikely scenarios:
- A steep drop in mortgage rates to the mid-2% range.
- A jump in household incomes of more than 50%.
- A plunge in home prices of roughly one-third.
With none of these outcomes likely, the market is expected to remain challenging. "We see the housing market remaining relatively stuck without major progress being made on affordability," commented Sean Roberts, CEO of construction company Villa.
While the weakening lock-in effect may bring more homes to the market, solving the broader affordability puzzle will require addressing a complex ecosystem of factors, including wage growth, construction costs, and local zoning policies.
