May 2024 Housing Market: Homeowners Locked in by Low Mortgage Rates

The Freddie Mac U.S. Economic Housing and Mortgage Market Outlook for May 2024 reveals significant insights into how mortgage interest rates are impacting the housing market, particularly across different generations. With the 30-year fixed-rate mortgage recently surpassing 7%, many prospective homebuyers find themselves priced out of the market. At the same time, current homeowners are hesitant to sell, clinging to historically low rates secured in 2020 and 2021. According to Freddie Mac’s chart below, over 60% of mortgages have rates below 4%, creating a substantial financial disincentive for homeowners to move, effectively locking them into their current homes. Homeowners who secured these low rates have, on average, locked in $66,000 in savings, which they would forfeit if they sold their homes in the current high-rate environment.

Analyzing the borrower-level National Mortgage Database, it becomes clear that Millennials and Gen Xers have benefited most from the low-rate environment, with average rates around 4%. Millennials, who entered the market en masse during the low-rate period of 2020-2021, secured favorable rates primarily through purchases, while Gen Xers capitalized on refinancing opportunities. In contrast, Gen Z, stepping into the market more recently, faces the highest average rates at 4.9%, with many having purchased homes during the higher rate periods of 2022 and 2023. This generational disparity in mortgage rates suggests that while refinance opportunities remain slim, should rates decline, there could be significant refinancing activity, especially among Gen Xers and Millennials.


Percentage of Homeowners with Mortgages at Various Rate Levels

Percentage of Homeowners with Mortgages at Various Rate Levels

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