How far do mortgage rates need to fall to break the 'lock-in effect'?

How far would mortgage rates need to fall for you to consider buying – or selling – a home this year?

(NEXSTAR) – Most Americans fortunate enough to have purchased a house before mortgage rates shot up in the spring of 2022 don't appear likely to sell any time soon, according to a new survey.

Bankrate asked Americans how low mortgage rates would have to fall before they would consider selling their current home and breaking the mortgage "lock-in effect" by purchasing a new house with a new mortgage rate.

“The mortgage lock-in effect has frozen home sales for the past couple of years,” said Bankrate analyst Jeff Ostrowski. “Alas, these results don’t bode well for an unfreezing of the market. Many homeowners aren’t keen to sell at all, and many would-be buyers are waiting for mortgage rates to dip below 6%.”

Just two percent of all Americans said they would be comfortable buying a house this year with a mortgage rate above 6% (the 30-year fixed rate mortgage was 6.77% as of Wednesday).

Homeowners were more likely than non-homeowners to say they would need lower rates to buy, with 47% saying rates would have to dip below 5%. Thirty-eight percent of homeowners said there is no mortgage rate that would make them feel comfortable buying a new home this year.

The survey, performed between June 18-20, involved 2,294 U.S. adults, with 1,133 of them current homeowners, according to Bankrate's methodology information.

Trapped in a starter home

A combination of high mortgage rates, low inventory and soaring home prices have made buying a larger home – or buying a first home – unfeasible.

The findings also suggest that many Americans already in so-called starter homes won't be leaving any time soon, which means putting up with the cramped homes they once envisioned selling as their families grew.

According to Freddie Mac, more than six out of 10 mortgages have rates below 4%, and that rate lock effect is exacerbating the housing supply crisis. Despite the reluctance to leave favorable rates, Freddie Mac says life events will still force people into the market.

"Gen Xers are generally several years away from retirement and have already transitioned from their starter homes to accommodate their growing family; therefore, they are less likely to move from their current homes," according to Freddie Mac researchers. "Millennials, on the other hand—particularly the younger Millennials—are more prone to changing jobs and transitioning into bigger homes as families grow, making them more likely to move regardless of their current low rates."

Will rates come down?

Homeowners and prospective buyers waiting for rates to let them back into the market may not get that entry point this year, experts say.

“Expectations about mortgage rates keep changing,” Ostrowski said. “The U.S. economy is still going strong, and the Federal Reserve keeps putting off its first rate cut. Add those things together, and the consensus is that mortgage rates will remain in the range of 6.5% to 7% by the end of 2024.”

Analysts at Redfin agreed, projecting rates to steadily decline over the course of the year to about 6.6%