The homebuying season is upon us as school lets out across the country and families consider big moves before the fall. Buyers saw more favorable conditions than last year in June as inventory picked up rather significantly, climbing 6.7% year-over-year. However, housing supply remains well below pre-pandemic levels. Scarce inventory has kept upward pressure on home prices, especially in affordable areas where homes continue to sell at a quick clip and buyers face considerable competition. Still-high mortgage rates are preventing significant improvement in for-sale inventory as the majority of homeowners hold a mortgage rate more than 2 percentage points below today’s going rate.
Data from the Federal Housing Finance Agency shows that in the fourth quarter of 2023, 21.9% of outstanding mortgages had an interest rate below 3%. The Freddie Mac fixed rate on a 30 year loan dipped below 3% in July 2020, and generally stayed below the 3% threshold through September 2021. This was the only period in the data’s history (back to 1971) where rates dropped below this threshold.
| Mortgage Rate | Share of Outstanding Mortgages (2024 Q1) | Cumulative Share |
| < 3% | 21.90% | 21.90% |
| 3% to 4% | 35.40% | 57.30% |
| 4% to 5% | 18.70% | 76.00% |
| 5% to 6% | 9.60% | 85.60% |
| 6% + | 14.30% | 99.90% |
More than a third (35.4%) of outstanding mortgages have an interest rate between 3% and 4%, 18.7% have a rate between 4% and 5%, 9.6% have a rate between 5% and 6%, and 14.3% have a rate of 6% or greater.
Altogether, this means that more than half of outstanding mortgages have a rate of 4% or lower, and more than three-quarters have a rate of 5% or lower. Today, mortgage rates are hovering around 7%, and have been greater than 6% since September 2022. As a result, many homeowners have chosen to stay put, holding off on listing their home for sale until mortgage rates come down. Based on a recent survey, 82% of those looking to sell their home and purchase a new one feel ‘locked-in’ by high mortgage rates.
The share of homeowners holding a mortgage with a rate of 6% or higher increased 4.9 percentage points between Q1 2023 and Q1 2024 as buyer activity carried on, despite high rates. Even in today’s high-price, high-rate market, home buying activity around big life events (kids, marriage, divorce, etc.) keeps the market in motion. Though the lock-in effect continues to impact the market, a recent survey revealed that a sizable 40% of potential buyers would find a home purchase feasible if mortgage rates were to drop below 6%, and another 32% of buyers would be willing to participate if rates dropped below 5%. Easing inflation and mortgage rates will be key drivers of seller activity, which will relieve some of the price pressure and competition felt in today’s under-supplied market.