LOCKED IN A HOME?

Who's stuck in a low-rate mortgage

In mid-2010, the economy struggled to recover from the Great Recession. House values had fallen, mortgages were in default, and fewer people were buying homes. Home values fell over 15% from 2008 to 2012. To encourage a rebound, Washington policymakers helped push mortgage rates below 5%, mainly by increasing Fannie Mae and Freddie Mac loan purchases at lower rates. At the end of 2011, that rate fell to 4%, helped by the Federal Reserve buying and holding low-rate loans. The stimulus worked; homes sales rose 12% in 2012 and that much again in 2013. Mortgage rates would stay between 4.5% and 3.5% for the next nine years. Then, prompted by a short COVID recession, the Fed bought more mortgage, prompting a drop to between 3.7% and 2.7% from 2020 through 2021.

• Rates started to tumble in 2011 but took 12 to 18 months to reach their lows; If you took out a mortgage from 2012 to mid-2013, you closed with a rate well below 4%
• Rates went up to above 4% by the end of 2013 but generally stayed between 4% and 4.5% through mid-2018
• After a spike to 4.9% at the end of 2018, rates tumbled to 2.7% over the next 2 years
• Mortgage rates started to rise in January 2022, hit a high of 7.8% in October 2023, and have fluctuated between 6.9% and 6.1% since then

The homebuyer profile changed over that time period. The National Association of Realtors has published a generational breakdown (Silent, Boomers, Gen X, Millennials, Gen Z) since 2013; at that time Gen X dominated, making up 37% of homebuyers, compared to 30% for Millennials and 27% for Boomers. Millennials held market dominance from 2015 to 2022 and Boomers took over in 2023. These buyers look for different qualities:

• Gen X was open to taking on fixer-upper challenges that required sweat equity and cash infusions, so they have built home equity over time. Many homes sold when prices were at their lows from 2012 to 2015 needed updates that these buyers were willing to complete over several years
• Millennials, often two-earner households accustomed to remote work flexibility, prefer renovated tech-capable homes that have office workspace, so they tend to purchase the most house a mortgage lender will qualify them for. They put off a home purchase while repaying college debt and because they marry at a later age, usually delaying having children
• Boomers stay in the market through real estate ups and downs using cash from selling previous homes for down payments and to update new space to their preference. By 2026, mortgage rates factor in only half of Boomer home purchases. Since 2023, Boomers have dominated both the Buyer and Seller home markets, so many sell to those with similar taste, minimizing update selling costs

How does that background set the current market, where the median time between buying and selling a home is 13 years?

• Gen Xers who bought in 2013 face the tough decision of giving up a low-rate mortgage to sell a home after its value has risen substantially, possibly as much as doubled as out-of-pocket renovations and repairs improved it. It will take less than half of the 2026 sale price to pay that mortgage off so they have a hefty down payment for their next home. Their affordability issue is related to the reality that a 2026 home purchase takes a much bigger piece of the household budget
• Millennials who maxxed out budgets from 2018 to 2021 to make first home purchases with low-rate mortgages now face repair/maintenance bills that budget cash flow stretches to cover. They may have built some equity to finance this work but the rates are the highest they've seen (unless they have credit card debt)
• As Boomers get accustomed to fixed income retirement, they budget for repairs and maintenance or delay work. As long as Boomers dominate the homebuyer market, homes with deferred maintenance should readily find cash-rich buyers

When interest rates hit post-COVID lows, about 4.5% of homes sold annually. Once mortgage rates went up, this dropped to 3.2%. Only Gen X homeowners offer substantial potential to respond to lower cost mortgage motivation and send the sales pace back over 4%:

• Lower rates might encourage Gen Xers who fear the pain of losing a cheap low-balance mortgage to sell and move but unless they materially downsize, monthly housing costs will be noticeably higher. Interest cost at a 1%-2% lower does not balance higher amortization related to how much homes have appreciated 
• Boomers have accumulated so much equity that, when they choose to sell, they buy their next home with cash if interest rates look high
• Millennials are most likely to feel locked into their current home but interest cost is only one reason to stay. They have tight budgets and the least credit flexibility. Moving takes money and time; they are in a phase of life marked by shortages of both. If recent medians hold, they will stay in their current homes for another 5 to 10 years, even if mortgage rates fall significantly

What about Gen Z? In 2025 Zoomers (born 1997 to 2012), purchased 2% of homes. Since most are not yet earning enough to afford a purchase at current prices, don't expect them to influence sales pace for a while.

Note 1: The progression of Fed mortgage purchases. This graph tracks its history

Note 2: NAR generational trends; data in the table expands what's mentioned above, derived from documents and articles posted on the internet; lowest rate periods shaded pink