Housing News

Is the Mortgage ‘Lock-In’ Effect Finally Loosening Its Grip on the Housing Market?

For nearly two years, America’s housing market has been gripped by what economists and real estate experts have dubbed the mortgage “lock-in effect.”

This is a term to describe the millions of homeowners who landed very low mortgage rates during the COVID-19 pandemic that “locked” them into their homes. They have been reluctant to sell their homes and get a new loan at today’s higher rates.

As a result, housing stock has remained tight, competition for affordable homes has been high, and sales have slowed.

Yet now something subtle—but important—may be finally changing. The so-called low mortgage rate “golden handcuffs” may be loosening. That’s not because mortgage rates are plunging, but because the reality of today’s rates has started to sink in.

“The mortgage rate lock-in effect will wear off over time,” said Danielle Hale, chief economist at Realtor.com. Here’s what will help the long-overdue thaw.

Why the mortgage lock-in effect may be softening

What would make a homeowner with a low mortgage rate give it up? Big life events can spur a sale.

“Life changes and the size of your home that brings you joy changes over time” could incentivize homeowners to sell, said Bruce Ailion of Greater Atlanta’s RE/MAX Town and Country. “Death, divorce, relocation, graduation, and more might trigger the need for something different.”

In addition to changes in homeowner’s lives, mortgages themselves evolve as well.

“As more time passes, homeowners with low mortgage rates will pay down their balances,” said Hale. “Some will eventually pay the mortgage off completely and others will pay it down to a small enough balance that it’s less of a factor in decisions.”

Hale also cited data from the 2025 Realtor.com forecast that anticipates that 75% of homeowners with a mortgage will have a rate under 6% by the end of 2025. “This is down from 83% in the most recent data and over 90% at peak—a good improvement,” she added.

In short, time is working against the lock-in effect. And that’s good news for the housing stock.

The number of real estate listings are picking up

There are already signs that housing stock is on the rise.

In February 2025, the number of homes actively for sale was up 27.5% compared to a year earlier, according to Realtor.com’s Monthly Housing Trends Report. More sellers listed their homes as well, with new listings increasing 4.2% year-over-year.

“Many people are considering selling and buying the right home for their needs, even if it means giving up a low-interest rate loan,” said Ailion.

More listings mean more choices for buyers—and more breathing room in the market. While overall housing stock remains below pre-pandemic norms, the recent uptick is meaningful, especially in high-demand metros where inventory has been tight.

Existing home sales in February rose 4.2% from the month before, according to the National Association of Realtors (NAR). Yes, that’s still down from a year ago—but the upward movement signals momentum.

Mortgage rates may have hit a new normal

Some people who want to buy or sell a home may have held out hope that the low mortgage rates from the pandemic would come back.

“There are still buyers and sellers waiting for sub-5 % interest rates, but increasingly people are coming to the conclusion this will not happen,” said Ailion.

The good news is that after rising sharply in 2022 and peaking above 7% in parts of 2023, mortgage rates have remained below that benchmark for much of early 2025.

As the market adjusts, sellers who were waiting for a “better time” to buy may be accepting that now is a good time to enter the housing market.

“Many people are tired of waiting for interest rates to drop,” added Ailion. And those people are taking action, which in turn is good news for potential sellers.

Buyers are getting a little relief

Even with rates where they are, buyers today are in a slightly better position than they were just a year ago. Competition has cooled. Many homes are staying on the market longer. And bidding wars—though not gone—are far less extreme.

In some overheated markets, particularly in some Texas and Florida markets, prices have pulled back. And across the country, some sellers are more willing to negotiate—offering price cuts, covering closing costs, or throwing in concessions to help buyers manage monthly payments.

The bottom line? The housing market of 2025 is finding a new rhythm. It’s not a boom. It’s not a bust. It’s a slow, steady recalibration.

“Without more substantial declines in mortgage rates, the lock-in effect is still going to be a factor for homebuyers and sellers for the next several years,” said Hale.

So, while the “golden handcuffs” aren’t exactly off, they’re no longer on as tight.