Mortgage Rates Are Falling, But Homeowners Are Still Glued To Their 3% Loans

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Mortgage rates have slid to about a one-year low, but they are still above 6%. That sounds helpful until you look at the big friction point.

Roughly 30 million households, more than half of primary mortgage holders, have rates at or below 4%. Many are under 3%.

If you have one of those loans, moving means a much bigger monthly payment for the same house, sometimes 70% higher by some estimates.

Most people do not volunteer for that.

This lock-in effect has frozen the existing-home market for years. Fewer listings hit the market, which keeps inventory tight and prices sticky.

Even when buyers hesitate, the lack of supply does a lot of the heavy lifting on prices.

There are also extra costs, making the decision harder. Home insurance and property taxes have risen in many areas, and near-record home prices keep affordability stretched.

So even with rates drifting down, it is still not cheap to buy, and it still does not make sense for many owners to sell.

The market is thawing, not flooding:

• Some buyers are stepping back in as rates ease and certain regions see softer prices

• Inventory has improved a bit in parts of the South and West, which gives buyers more negotiating power

• Existing-home sales have improved recently, but overall activity is still muted compared with normal years

For investors, the setup is straightforward. If existing homeowners do not sell, new-home builders gain share because they can create supply.

Builders also have a key advantage: they can use incentives like rate buydowns, upgrades, and closing-cost help to make the monthly payment feel less brutal.

On the finance side, mortgage servicers can benefit from this lock-in world because fewer people refinance when their current mortgage is already far cheaper than today’s rates.

So this is not a housing boom call. It is a constrained-supply call.

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Actionable Stuff

• Do not wait for 4% mortgages to return. The base case is a slow grind lower, not a miracle drop.

• Lean into new-home share gainers. Builders can win even if the overall market stays sluggish.

• Follow incentives. Companies that can buy down rates and close deals have an edge.

• Think regional. The South and West are where inventory and negotiations are loosening first.

• Buy in pieces. Start small now, add on dips, add again if spring demand surprises.

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Bottom Line

Rates are easing, but homeowners are still locked into ultra-low loans, and most are staying put.

That keeps resale inventory tight and the housing market stuck in slow motion.

The winners are the companies that can make housing happen anyway: builders that can add supply and use incentives, and mortgage platforms that can profit from stability.