Mortgage lock-in effect continues to paralyze housing market activity
The mortgage lock-in effect is continuing to hold back housing market activity, with a growing share of American homeowners saying they wouldn’t buy or sell a home this year regardless of how far mortgage rates fall.
More than half (51%) of homeowners surveyed said they wouldn’t feel comfortable buying another home under any interest rate scenario, up from 38% last year, according to Bankrate’s 2025 Mortgage Rates Sentiment Survey. Similarly, 54% of homeowners said they wouldn’t be comfortable selling this year, up from 42% in 2024.
“Mortgage rates haven’t been below 6 percent in nearly three years, so buyers and sellers alike have reluctantly adjusted to high rates,” said Bankrate chief financial analyst Greg McBride. “While many would-be buyers are holding out for lower mortgage rates, what constitutes ‘lower’ has evolved. Many that were pining for a return to 3% or 4% rates would probably jump for joy if rates fell into the 5s.”
Only 1% of homeowners said they would be comfortable buying a home at current mortgage rates of 6% or more. Another 40% said they would need rates to drop below 6% to consider buying, and 8% were undecided.
Among homeowners with mortgages below 3%, 41% said they wouldn't be interested in buying another home at any rate this year. Even 28% of those paying 5% or more shared the same sentiment. Meanwhile, 37% of all respondents said they would only buy if rates dropped below 5%.
Refinancing interest has also dried up
Just under 1% of homeowners said they would refinance with rates at 6% or more. In contrast, 54% said they wouldn’t refinance under any rate this year, and another 35% said they’d need to see rates below 5% to consider it.
“With so many homeowners having bought or refinanced at sub-5% rates prior to 2022, there isn’t much of an appetite or incentive to refinance at today’s comparatively high rates,” McBride said in the report. “Even many borrowers that bought in the last three years haven’t seen the significant drop in rates they were hoping to see in order to refinance.”
Meanwhile, about 23% of home sellers said they’d need to see mortgage rates below 5% to list their homes, and 14% said they’d only feel comfortable if rates fell below 4%. Just 3% said they’d be comfortable selling with rates at 6% or higher.
Price softening offers little motivation
Even though home price growth has slowed nationally, rising only 1.3% year-over-year in June, down from 1.6% in May, according to the ICE Home Price Index, it hasn’t been enough to reignite buyer interest.
ICE reported that 27 of the 100 largest US housing markets reported annual price declines, the most widespread downturn since the Fed began hiking interest rates in 2022.
Read next: Why slashing Fed rates could backfire: Economist warns of 1980s-style inflation
“There are two competing forces in the housing market right now,” said Andy Walden, head of mortgage and housing market research at ICE. “Increasing inventory levels are helping to make homes more affordable, but prices are falling in an increasing number of markets and homes are taking longer to sell, which could make homeowners reluctant to list.”
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