Approximately 88.5% of homeowners with mortgages have an interest rate below 6%, down from a record-high of 92.8% in mid-2022, according to a new report from Redfin.
With mortgage rates averaging 6.66% as of Jan. 11, according to Freddie Mac, more than 88.5% of current homeowners have mortgage rates below the current market rate, further driving the lock-in effect. Redfin data indicates 78.7% of homeowners have rates below 5%, 59.4% have rates below 4%, and 22.6% of homeowners have rates below 3%.
Despite many homeowners having below-market rates, major life events are still occurring, prompting individuals to move. According to Redfin, home listings have ticked up, in part due to life events necessitating a move. Listings are also increasing as mortgage rates have come down from 8% levels seen in October.
The typical home buyer purchasing a median-priced home at the average mortgage rate is facing a monthly payment of $2,399, according to Redfin. While this is down more than $300 from record highs seen in 2022, it is still 7.4% higher than a year ago.
“Mortgage rates have not moved materially over the last three weeks and remain in the mid-6% range, which has marginally increased home buyer demand,” says Freddie Mac chief economist Sam Khater. “Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers.”
The recent drop and stabilization of mortgage rates is also prompting more activity in mortgage applications. According to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Jan. 5, mortgage applications increased 9.9% from the previous week.
The adjusted refinance index increased 19% from the previous week and 30% compared with the same week in 2023, according to the MBA. The seasonally adjusted purchase index increased 6% from the previous week, and the unadjusted purchase index was 16% lower than the same week a year ago.
“The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines,” says Joel Kan, vice president and deputy chief economist for the MBA. “Mortgage rates and applications have been volatile in recent weeks, and overall activity remains low.”
The refinance share of mortgage activity ticked up to 38.3% of total applications from 36.3% in the previous week. The adjustable-rate mortgage share of activity decreased to 5.4% of total applications.
