Survey: 47% of homeowners would need mortgage rates under 5% to be comfortable buying a home this year

During the pandemic, super-low mortgage rates spurred home sales. Now, with rates more than double what they were in 2022, few homeowners want to trade 3 percent mortgages for new loans at 6 or 7 percent.

The freeze — termed the “mortgage lock-in effect” — seems unlikely to thaw soon. Forty-seven percent of current homeowners say mortgage rates would need to plunge below 5 percent for them to be comfortable buying a home this year. according to Bankrate’s Mortgage Rates Survey. Thirty-eight percent say they’re holding out for a rate south of 4 percent.

Bankrate’s key takeaways

What mortgage rate would motivate homeowners to buy?

Breaking out of the lock-in effect requires homeowners to list their homes for sale so they can move up, downsize or otherwise move on. In our survey, we asked homeowners: How low do mortgage rates need to be to make that happen?

Among current homeowners, 47 percent say mortgage rates need to be below 5 percent for them to feel comfortable buying a home this year. Fully 38 percent say rates would need to be below 4 percent.

Overall, more than half of homeowners (52 percent) say they would need a mortgage rate lower than 6 percent to be motivated to buy this year.

Meanwhile, some say they’d be compelled only if rates plummet. Twenty percent of homeowners say they’d need rates to plunge below 3 percent before they’d feel comfortable purchasing a home.

Nearly two in five homeowners (38 percent) say there is no mortgage rate that would make them comfortable buying a home this year.

Among non-homeowners, 31 percent say they would need a mortgage rate less than 5 percent to be comfortable buying a home this year, while one-quarter (25 percent) say something less than 4 percent is the magic number.

What would it take for sellers to put their homes on the market?

Many homeowners would need to sell one home to be able to buy another. Some 30 percent of homeowners say mortgage rates need to be less than 5 percent for them to feel comfortable selling their home this year, while 21 percent say they’d need rates of less than 4 percent.

Overall, 35 percent of homeowners say they need a mortgage rate less than 6 percent to be comfortable selling their home this year.

Only 5 percent of homeowners say they would be comfortable selling their home this year with mortgage rates at 6 percent or higher.

Crucially, 42 percent of homeowners say there is no mortgage rate at which they’d be comfortable selling their home this year.

Tips to overcome too-high mortgage rates

• Consider resetting your expectations. American homeowners benefitted from 15 years of very-low mortgage rates, an era that began during the Great Recession in 2008 and culminated with the rock-bottom rates of the pandemic. However, it’s unlikely mortgage rates will return to those 3 percent levels in the near future. “The hopes for lower interest rates need the reality check that ‘lower’ doesn’t mean we’re going back to 3 percent mortgage rates,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “Mortgage rates are 7 percent now and the best we may be able to hope for over the next year is 5.5 to 6 percent.”
• If you’re ready to buy, now might be the time to strike. Home prices have been rising primarily because of a longstanding shortage of homes for sale. That’s unlikely to change, and if mortgage rates do fall below 6 percent, it’s possible buyers would enter the market en masse, further pushing up prices and resurrecting bidding wars.
• Take your time finding the best deal. No matter how high or low mortgage rates are, compare at least three offers from mortgage lenders. There’s enough variation in rates and fees that you could save thousands of dollars over the life of your loan.

FAQ

• What is the mortgage lock-in effect?

  During the pandemic, many Americans bought homes or refinanced, locking in long-term mortgage rates less than 4 percent. Now that rates are hovering around 7 percent, homeowners are unwilling to move and give up those appealingly low rates.

• Why did mortgage rates shoot up so quickly?

  As the pandemic shut down global spending, the Federal Reserve stimulated the U.S. economy by slashing interest rates to zero. Mortgage rates followed, plunging below 3 percent. The Fed’s policy worked a little too well, however: Inflation spiked, and the central bank was forced to raise rates aggressively to contain prices. As a result, mortgage rates rose as high as 8 percent in late 2023 before settling into their current range of about 7 percent.

• When will mortgage rates fall?

  Currently, economists expect the Federal Reserve to cut interest rates sometime in the second half of 2024. That could cause mortgage rates to edge down a bit. However, the consensus among housing forecasters is that rates will remain above 6 percent for the rest of 2024.

  Forecast: When will mortgage rates go down?

• Methodology

  This survey on mortgage rates was conducted using an online interview administered to members of the YouGov Plc panel of individuals who have agreed to take part in surveys. Emails were sent to panelists selected at random from the base sample. The responding sample is weighted to the profile of the sample definition to provide a representative reporting sample.All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,294 adults, of whom 1,133 were current homeowners. Fieldwork was undertaken June 18-20, 2024. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).