What's Happening?
The U.S. housing market is experiencing a significant shift as the number of homeowners with mortgage rates above 6% has surpassed those with rates below 3%. This change marks a pivotal moment in the housing recovery, as identified by Realtor.com's senior economic research analyst, Hannah Jones. The elite group of homeowners with sub-3% rates, which was once dominant, has shrunk to 20% of outstanding mortgages as of the third quarter of 2025. These low rates were primarily available between July 2020 and September 2021. Meanwhile, nearly half of American mortgage holders have rates between 3% and 5%, creating a 'golden handcuff' effect where homeowners are reluctant to sell and face higher borrowing costs. The fastest-growing group now consists
of those with rates above 6%, driven by life events and new market entrants.
Why It's Important?
This development is crucial as it reflects broader economic trends and impacts the housing market's dynamics. The shift indicates a normalization of mortgage rates, moving away from the historically low rates seen during the pandemic. This change affects housing inventory, as many homeowners are locked into their current homes due to the 'golden handcuff' effect, limiting supply. However, the rise in high-rate mortgages suggests a growing acceptance of current market conditions, potentially leading to increased mobility and a more balanced market. The shift also highlights the challenges faced by new buyers entering the market at higher rates, impacting affordability and homeownership rates.
What's Next?
As the housing market continues to adjust, the elite class of sub-3% mortgage holders is expected to diminish further as mortgages are paid off or homeowners move. The market is projected to become more balanced, with some areas potentially becoming buyer's markets. The 'lock-in' effect remains a challenge, but as more homeowners accept the current rate environment, market activity may increase. Analysts predict that by the end of 2025, the share of mortgages under 6% will approach 75%, indicating a gradual shift towards higher rates as the new norm.
