Reports from Freddie Mac indicate that homeowners with low mortgage interest rates are realizing savings of $66,000 due to the “lock-in effect.” As of October 2023, clients have secured a total of $800 billion in savings, with about 60% of mortgage holders having a rate of 4% or lower. Fitch Ratings reports that homes in the United States are estimated to be overvalued by up to 9.4%.
The Lock-In Effect Grows for Owners with Low Mortgage Rates
According to a new report, homeowners with low mortgage interest rates and high-interest rates coupled with fewer homes for sale are seeing greater value in their properties. American homeowners with a mortgage interest rate below the current average of 6.67% saved $66,000 by not selling their homes in December, up from over $55,000 according to Freddie Mac’s calculations in July. Freddie Mac estimates that homeowners who “locked in” their homes have saved a total of $800 billion as of October, as six in ten borrowers have a mortgage interest rate of less than 4%.
The Impact of High-Interest Rates on the Housing Market
High-interest rates have driven many homeowners to stay put instead of selling their homes in the fall, leading to a drop in housing inventory and existing home sales to their lowest levels since 2010. Freddie Mac’s report shows that high-interest rates continue to negatively affect the housing market, despite their recent decline from highs not seen in over two decades.
“This drop in prices is bringing some life back to the housing market, with some prospective buyers taking action as evidenced by home purchase applications, which increased 15% from mid-October to early December,” according to Freddie Mac’s report. “However, demand is currently very sensitive to changes in mortgage rates, and prices need to decline further for buying demand to continue.”
Rising Housing Prices
Housing prices continue to rise. Freddie Mac found that prices grew at a monthly rate of 0.8% in October, faster than the pandemic average of 0.4%. The report adds to other recent data showing home prices continue to rise, including the latest Case-Shiller Home Price Index showing prices increased in October at the fastest rate year-over-year.
But whether homes are worth their continuously rising prices remains to be seen, as Fitch Ratings reports homes are estimated to be overvalued by up to 9.4% in the second quarter of 2023. The Fitch report found that home prices in 88% of the country’s urban areas are appraised as being higher than their true value, and it is expected that homes will remain overvalued in the third quarter.
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Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reports, and interviews with industry experts. We also refer to original research from other reputable publishers when appropriate. You can learn more about the standards we follow in producing accurate and unbiased content in our editorial policy.
Freddie Mac. “Economic and Housing Market Outlook – December 2023.”
Freddie Mac. “Economic and Housing Market Outlook – July 2023.”
National Association of Realtors. “Existing home sales expanded 0.8% in November, ending a five-month decline.”
Agency
Fitch Ratings. “Home prices are still valued at 88% across the United States.”
Source: https://www.investopedia.com/lock-in-effect-grows-for-homeowners-with-low-mortgages-8420236
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