According to a new Redfin report, about 86% of U.S. homeowners with mortgages now have interest rates below 6%. That’s down from 91% at the start of 2023 and a peak of 93% in mid-2022.

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It’s a small shift, but a significant one. For months, economists have pointed to this “lock-in effect” as a key factor in the housing shortage. Homeowners, reluctant to give up rock-bottom rates, have been staying put rather than selling and buying at today’s higher rates.

“I have a dozen or so homeowners who would like to sell, but aren’t willing to give up their 3% interest rate for one that’s more than twice as high,” says Blakely Minton, a Redfin agent in Philadelphia. “Many of those sellers will list if rates get back down to 5%.”

The current average 30-year fixed mortgage rate sits at 6.44%, according to Mortgage News Daily. While that’s the lowest in 15 months, it’s still more than double the pandemic-era lows that many homeowners locked in.

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So why the change? For some, life gets in the way, according to Redfin. Job transfers, growing families or divorces can force a move regardless of rate considerations. Others are finally deciding that built-up equity outweighs the sting of a higher rate, especially if they’re downsizing or relocating to a cheaper area.

The gradual easing of the lock-in effect offers some hope for buyers facing the lowest level of home listings in a year. But Lawrence Yun, chief economist at the National Association of Realtors, cautions against expecting bargains.

“Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely,” Yun said. He points to persistent demand as a counterbalance to a surge in supply.

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Home prices hit a new record in June, according to Bankrate, with the median existing home sale price reaching $426,900. July saw a slight dip to $422,600, but that was still an all-time high for the month.

The question now is whether the Federal Reserve’s expected interest rate cuts, which are expected to start as soon as September, will accelerate the trend. Lower rates could tempt more owners to sell, but they might also unleash pent-up buyer demand, potentially pushing prices even higher.

More owners may be willing to list, but a true return to “normal” inventory levels is likely still a long way off. Buyers hoping for a replay of the 2008 crash shouldn’t hold their breath, Bankrate says.

“The fundamental reason for the run-up in price is heightened demand and a lack of supply,” Greg McBride, Bankrate’s chief financial analyst, was quoted in the report. “As builders bring more available homes to market and more homeowners decide to sell, supply and demand can come back into balance. It won’t happen overnight.”

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