The Lock-In Effect is Easing, But Oh So Slowly
July 21, 2025
The lock-in effect is a term that economists use to explain why the existing-home market has suffered from a severe lack of inventory in recent years. Homeowners have been discouraged from selling because they would have to finance their next homes at much higher rates than they pay on their current mortgages.
Nearly two-thirds of outstanding mortgages had rates below 4% in the first quarter of 2022, after many homeowners grabbed the chance to refinance at historically low rates during the pandemic. The share of mortgages with very low rates has ticked down since then, because some households want or need to sell regardless of interest rates, but it’s still much higher than before the pandemic. Although it’s possible that the lock-in effect may linger for years to come, it could loosen its grip on the housing market more quickly if mortgage rates drop.
Share of outstanding mortgages by interest rate
Less than 3%
Q4 2019: 3.5%
Q1 2022: 24.6%
Q4 2024: 20.9%
3% to 4%
Q4 2019: 33.8%
Q1 2022: 40.5%
Q4 2024: 33.2%
4% to 5%
Q4 2019: 39.4%
Q1 2022: 20.5%
Q4 2024: 18.0%
5% to 6%
Q4 2019: 12.2%
Q1 2022: 7.0%
Q4 2024: 9.9%
6% or greater
Q4 2019: 11.1%
Q1 2022: 7.5%
Q4 2024: 18.0%
Source: Federal Housing Finance Agency, 2025
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