Low Mortgage Rates Are Keeping Homeowners in ‘Golden Handcuffs’

Homeowners who were lucky enough to secure historically low mortgage interest rates during the pandemic aren’t budging—and that's putting the brakes on the housing market. 

For decades preceding the outbreak of COVID in 2020, homeowners built equity by trading up their homes, but according to real estate analytics firm Cotality, that reliable housing model has been disrupted.

A recent report from Realtor.com®—mirrored by Cotality data—shows that over half of American homeowners (52.5%) had an interest rate below 4% as of the second quarter of 2025. That's 2 percentage points below current rates that have been stuck in the low- to mid-6% range for the last couple of months. 

The difference between having a 4% mortgage rate and a 6% rate could mean hundreds or even thousands of dollars in savings each month—a fact that is not lost on homeowners, who find themselves in what the authors of the Cotality report are calling "golden handcuffs."

In other words, a homeowner with a 3% mortgage rate may feel unwilling to sell their property because they do not want to relinquish their low rate, contributing to a slowdown in new listings and sales.

"This is particularly true for move-up buyers, empty nesters, and those who would otherwise relocate," Cotality Chief Economist Dr. Selma Hepp tells Realtor.com. "In some markets, inventories remain more than 50% below pre-pandemic levels."

The Federal Housing Finance Agency estimated that the "lock-in effect" has prevented 1.72 million home sales between 2022 and 2024.

"Overall transaction volume—especially for existing homes—has plummeted to multi-decade lows," says Hepp. "The friction of the high cost of moving has stalled the normal churn of the housing market."

Inventory is under lock and key

Homeowners' reluctance to sell because of today's higher mortgage rates has had a major effect on the U.S. housing supply, with the pace of inventory growth decelerating since May, according to the Realtor.com September 2025 monthly housing market trends report.

National inventory remains roughly 14% below pre-pandemic levels, although it varies widely across regions, with the South and West now boasting more for-sale homes than in 2019, while the Northeast and Midwest remaining severely undersupplied. 

And while the elevated interest rates are sapping buyer demand, the tight housing inventory creates scarcity and keeps prices high.

In September, the national median list price was $425,000, same as a year ago, but rose on a per-square-foot basis in the low-inventory Northeast and Midwest.

"The lack of supply often creates a tight market, increasing the ratio of buyers to sellers," explains Hepp. "Markets with the largest scarcity of homes for sale continue to see the strongest price growth despite affordability challenges."

Even when homeowners are willing to sell, would-be buyers often are hesitant to come to the table because of the current elevated mortgage rates, still-high prices, and general economic uncertainty.

"For first-time buyers or those who must move, the combination of high home prices and high interest rates creates a severe affordability challenge, locking them out of homeownership," notes Hepp.

Perhaps unsurprisingly, last month the typical listed home sat on the market for 62 days, a week longer than a year ago.

How to unlock the housing market?

For housing market activity to rebound, Hepp says several conditions need to align for homeowners, beginning with a significant and sustained drop in mortgage rates below the 6% threshold or even lower, which Hepp says would be the most effective way to free sellers of their "golden handcuffs."

"Even a gradual decline can help, as homeowners may eventually decide the new rate is a reasonable trade-off for their desire to move," adds the chief economist.

The other way the "lock-in effect" could ease is simply through the passage of time, as life events such as marriage, divorce, job relocation, and retirement force homeowners to sell regardless of their ultra-low mortgage rates.

On a related note, as time goes by, homeowners may eventually adapt to the new normal and accept that pandemic-era mortgage rates below 4% are not likely to make a comeback in the near future.

Fannie Mae’s monthly economic and housing outlook released in September predicted that mortgage rates will average 6.4% by the end of the year and could potentially edge down to 5.9% by the end of 2026. 

Economists with the National Association of Realtors® said that a 30-year fixed-rate mortgage of 6% would make the typical home affordable for roughly 5.5 million more households.

But opinions among experts are divided on whether mortgage rates will actually dip below 6% anytime soon. 

Speaking at the Mortgage Bankers Association conference in Las Vegas this week, MBA Chief Economist Mike Fratantoni projected that mortgage rates will remain stuck in the 6% to 6.5% range for the next three years.

Worst-case scenario

If the grimmest prediction comes to pass and 30-year fixed mortgage rates won't retreat below 6%, the "golden handcuffs" will continue to constrain potential sellers, possibly leading to what Hepp calls "system" repercussions.

One of those repercussions could be reduced labor mobility, meaning that homeowners would be less likely to move for a job opportunity in a different city if it means giving up their low mortgage rate.

At the same time, "locked-in" homeowners may be trapped in dwellings that no longer fit their needs, being either too small for a growing family, or too large for empty nesters who would have preferred to downsize.

"This inefficiency means housing stock is not being used for its highest and best purpose, and it exacerbates the shortage of smaller 'starter' homes," explains Hepp.

On top of that, a persistent "lock-in effect" could exacerbate wealth inequality between existing homeowners who benefit from low rates and see their housing costs shrink through inflation over time and first-time buyers facing historically high payments.

As a result, many young aspiring homeowners may delay moving out of their parents' homes and starting families of their own.

Lastly, according to Hepp, homeowners staying put and biding their time to sell may put off maintenance on their properties, leaving them in disrepair and leading to an aging of the U.S. housing stock.