9 in 10 homeowners have a mortgage rate below 6% - here's why that's hurting the housing market

By Aarthi Swaminathan

'A lot of sellers are worried about finding their next house,' one broker says

The vast majority of homeowners in the U.S. have a mortgage rate far below the prevailing rate, which will continue to discourage them from selling.

Nationally, 88.5% of U.S. homeowners have a rate below 6%, Redfin (RDFN) said in a new report on Friday. The brokerage analyzed data from the third quarter of 2023 from the Federal Housing Finance Agency's National Mortgage Database.

The figure is down from a record high of 92.8% in mid-2022, Redfin noted.

For some owners, the gap between their rate and the current one is even larger: 23% of homeowners have a rate below 3% and nearly 60% below a rate of 4%.

But the current rate was far higher. 30-year rate edged higher to 6.66% as of January 11, according to Freddie Mac, and remains far above the pre-pandemic days of 3% and 4%.

Roughly 60% of homeowners in the U.S. have an outstanding mortgage. Most buyers have 30-year fixed-rate mortgages.

For homeowners looking to move, having to take on a new mortgage at a higher rate would increase their monthly payment. Additionally, they also face a tougher market, as inventory remains low and home prices edge higher as buyers descend on a limited number of homes for sale.

Home prices hit an all-time high in October, Case-Shiller said, with most of the major U.S. cities reporting an increase in home prices on an annual basis. The typical resale home was $387,600 in November, according to the National Association of Realtors.

The NAR also noted that in November, the latest month for which it has data, total housing inventory was down 1.7% from the previous month.

Homes were less affordable in 99% of 580 counties analyzed by Attom, a real-estate data analytics company, in the fourth quarter of 2023. In the most expensive county, San Mateo, Calif, the annual income needed to buy a house with 20% down was $392,418, the company noted.

Some sellers are biting the bullet and trading in their low rate, unshackling themselves from the so-called lock-in effect, one broker said.

"Sellers have started coming out of the woodwork because that's typical for January and because mortgage rates have dropped," David Palmer, a Seattle-based real-estate agent with Redfin Premier, said in a statement.

"They're also coming to terms with the fact that rates aren't going back down to 3% any time soon, which makes it easier to pull the trigger on selling," he continued.

At the same time, "a lot of sellers are worried about finding their next house because even though listings are rising, there's still a housing shortage," Palmer added. "That's part of the reason so many sellers remain on the sidelines."

-Aarthi Swaminathan

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01-13-24 1029ET

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