Report: 17% of US Homeowner Mortgages Have Interest Rates of 6% or More
A growing number of Americans are becoming accustomed to the notion that interest rates are unlikely to revert to the pandemic lows, according to a report by Redfin.
According to data from real estate brokerage Redfin, the proportion of homeowners with mortgage rates of 6 percent or higher has reached its highest level in almost a decade. The report indicates that the “lock-in effect” within the housing market is beginning to diminish.
The company notes that 17.2 percent of homeowners currently have a mortgage rate of 6 percent or above, the highest percentage recorded since 2016.
On the other hand, 82.8 percent of homeowners enjoy mortgage rates below 6 percent. This also means that an even greater share of owners has rates lower than the January 30 weekly average rate of 6.95 percent, the report highlights.
This situation is leading many to remain in their homes rather than sell and purchase another property at a higher rate. This phenomenon, known as the “lock-in effect,” contributes to a reduced housing supply, which in turn fuels price growth and exacerbates the affordability crisis.
Nonetheless, signs indicate the lock-in effect is beginning to wane, as Redfin notes, “It’s not realistic to stay put forever for most people.” Many are choosing to relocate despite elevated rates due to significant life changes, such as job relocations or divorce, as indicated by Redfin’s agents.
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“Many Americans are adjusting to the reality that rates are unlikely to return to the lows experienced during the pandemic,” the Redfin report noted.
Additionally, the dramatic increase in home values during the pandemic has resulted in many homeowners possessing sufficient equity to justify selling and taking on a higher mortgage rate, especially in cases where they are downscaling or relocating to more affordable areas, the report adds.
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Mortgage applications for home purchases have decreased in light of high interest rates. The Mortgage Bankers Association (MBA) reported that while total mortgage applications rose by 2.2 percent for the week ending January 31 compared to the previous week, the increase was primarily due to a 12 percent rise in refinancing applications.
“Purchase activity faced challenges this past week, with declines noted across all loan types,” stated Joel Kan, MBA Deputy Chief Economist. “The average loan size for purchase loans has risen since the beginning of the year.”
In the last two weeks, mortgage purchase applications are “modestly above the levels seen a year ago,” he noted, indicating a presence of “some latent demand in the market.”
Currently, there are 110,727 new single-family build-to-rent homes being built in the U.S. across 613 developments, the report states.
In terms of state distribution, Texas leads the country in build-to-rent projects with 21,812 homes at varied construction stages, followed by Arizona and Florida with nearly 14,000 properties each, and North Carolina with over 12,000 units.
Doug Ressler, manager of business intelligence at Yardi Matrix, a sister company to Point2Homes, mentioned that renting a build-to-rent home is generally cheaper than purchasing a starter home.
“Recent findings suggest that renting could save someone about $1,000 per month compared to buying a house, mainly due to high mortgage rates and elevated prices,” Ressler stated.
“An increasing proportion of those living in build-to-rent homes identify as renters by choice; 36 percent in 2024 compared to 27 percent in 2023.”
