Mortgage rates have declined to their lowest levels in more than a year, but the expected surge in home listings has yet to materialize. The reason is simple: a massive share of homeowners are effectively locked into ultra-low mortgage rates they are unwilling to surrender.

According to reporting from The Wall Street Journal, nearly 30 million U.S. households, or 54% of primary mortgage holders, have mortgage rates at or below 4%. Many secured those rates during the historic refinancing and buying window of 2020 and 2021, when mortgage rates dropped to 3% or lower.

The Lock-In Effect

Even with recent rate declines, today’s mortgage rates remain meaningfully higher than what many homeowners currently pay. Selling a home often means replacing a 3% mortgage with one closer to 6% or higher, dramatically increasing monthly payments, even if the new home is similarly priced.

This creates a strong disincentive to move, particularly for:

• Empty nesters who might otherwise downsize

• Families considering a move within the same market

• Homeowners satisfied with their current location but open to upgrading

Why This Matters for Inventory

Housing supply remains constrained not because people don’t want to move, but because the cost of moving has risen sharply. The lock-in effect reduces resale inventory, limits buyer choice and keeps prices supported even in the face of affordability challenges.

Lower mortgage rates alone may not be enough to free up supply. For many homeowners, rates would need to fall significantly below current levels to justify giving up historically favorable financing.

Longer-Term Implications

This dynamic is reshaping housing behavior. Homeowners are choosing to renovate instead of move, hold properties longer and reassess what “starter” and “forever” homes mean. The result is a slower, tighter market that reacts differently to rate changes than it did in past cycles.

Until the gap between existing mortgage rates and new loan rates narrows meaningfully, the lock-in effect is likely to continue influencing housing supply and pricing. If you’re weighing whether it makes sense to move, refinance or stay put given today’s rate environment, I can help you compare the numbers and evaluate what actually works best for your situation