Mortgage rates well above the ultra-low levels many current homeowners locked in years ago have frozen a meaningful share of the existing housing supply, as owners stay put rather than trade a low rate for a much higher one.
Millions of homeowners refinanced or purchased during a period of historically low mortgage rates, and current rates well above those levels have created a strong financial incentive for those owners to simply stay in their existing homes rather than sell and take on a new mortgage at a substantially higher rate, even if their housing needs have changed.
The effect, often described as rate lock-in, has meaningfully reduced the supply of existing homes coming onto the market, since a large share of potential sellers are effectively opting out of trading, contributing to persistently tight inventory and elevated prices even as overall demand has cooled somewhat from its post-pandemic peak.
New construction can only partly fill the gap
Homebuilders have responded by increasing new construction, which isn’t subject to the same lock-in dynamic, but new supply has been constrained by labor shortages, higher material and financing costs, and local permitting bottlenecks that limit how quickly builders can scale up in high-demand areas.
“We have a housing shortage that isn’t really about people not wanting to sell. It’s about a locked-in rate that makes selling financially irrational for millions of owners.”
Economists generally expect the lock-in effect to fade gradually as rates eventually decline or as enough time passes that life circumstances force more owners to move regardless of their mortgage rate, but most forecasts see the effect persisting as a meaningful drag on housing turnover for some time yet.
