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?

• Why did mortgage rates shoot up so quickly?

• When will mortgage rates fall?

• Methodology