Lock-In Effect Grows Larger for Homeowners with Low Mortgage Rates

By
Terry Lane
Terry Lane
Full Bio
Terry has 25 years experience in journalism and communications, reporting on a range of topics that include personal finance, telecommunications, Congress, government regulations, and criminal justice. He has also worked on technology, energy, and environmental policy issues as a congressional press secretary and owned and published a local community newspaper in North Carolina.
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Published December 27, 2023
A For Sale sign displayed in front of a home.

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Key Takeaways

  • Homeowners with low mortgage rates are realizing $66,000 in “lock-in effect” savings, a Freddie Mac report shows.
  • As of October 2023, customers had locked in a total of $800 billion in savings, as around 60% of mortgage holders have a rate of 4% or lower.
  • Fitch Ratings agency reports that U.S. homes are overvalued by as much as 9.4%.

With mortgage rates remaining elevated and fewer houses listed for sale, homeowners sitting on favorable rates are getting more value out of their property, a new report shows.

U.S. homeowners with a mortgage rate under the current average of 6.67% saved $66,000 by not selling their home in December, more than the $55,000 that Freddie Mac calculated in July. Freddie Mac estimates that "locked-in" homeowners had saved a total of $800 billion as of October, as six in 10 borrowers have a mortgage rate below 4%.

High interest rates prompted many homeowners to stay in their homes instead of selling in the fall, sending housing inventory down and existing home sales to their lowest levels since 2010. The Freddie Mac report shows that high mortgage rates continue to weigh on the housing market, despite their recent downtick from the highest levels in more than two decades.

“This decrease in rates is breathing some life back into the housing market with some potential homebuyers taking action that is reflected in home purchase applications, which increased 15% between mid-October and early December,” the Freddie Mac report said. “However, demand is currently very sensitive to changes in mortgage rates and rates would need to fall further in order for purchase demand to continue to recover.”

Meanwhile, housing prices continue to rise. Freddie Mac found prices grew at a monthly rate of 0.8% in October, faster than the pre-pandemic average of 0.4%. The report adds to other recent data showing that home prices continue to move higher, including the latest Case-Shiller Home Price Index showing housing prices in October growing at their fastest rate all year.

But whether homes are worth their ever-higher prices remains to be seen, with Fitch Ratings agency reporting U.S. homes in the 2023 second quarter were overvalued by as much as 9.4%. The Fitch report found that home prices in 88% of the country’s metro areas were overvalued, and predicted that the homes will remain overvalued going into the third quarter.

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  1. Freddie Mac. “Economic, Housing and Mortgage Market Outlook–December 2023.”

  2. Freddie Mac. “Economic, Housing and Mortgage Market Outlook–July 2023.”

  3. National Association of Realtors. “Existing-Home Sales Expanded 0.8% in November, Ending Five-Month Slide.”

  4. Fitch Ratings. “Homes Prices Remain Overvalued in 88% of the U.S..”