The ‘golden handcuff’: 3% mortgages are now outnumbered by 6% payments
After years of record-low mortgage interest rates, the share of U.S. homeowners with 6% mortgage rates officially surpassed the share with rates of 3% or lower. This is the first time this has happened since the start of the COVID-19 pandemic.
About 21% of American homeowners have a mortgage interest rate of 6% or higher, just about 20% have a 3% interest rate or lower, according to the National Mortgage Database.
The increasing interest rates are one of the major reasons homeowners are staying in their homes longer. Currently, homeowners live in their homes for an average of about 8 years, the longest in decades.
Why are rates so high?
The pandemic caused several significant issues, including a rise in inflation to levels not seen since the 2008 financial crisis. A global supply chain disruption and rising consumer spending after governments provided citizens with money after mass lay-offs contributed to the dollar’s devaluation.
Inflation led the Federal Reserve to adopt an aggressive plan to raise interest rates — and it did. After setting rates to nearly 0% in March 2020, the Fed raised rates 11 times from 2022 to 2023, increasing them to more than 5%.
However, the Fed has lowered rates various times since then, but that hasn’t made a big difference in mortgage rates. That’s because mortgage rates don’t directly follow the Fed rate. Other components, like the 10-year Treasury yield, affect mortgage rates. If investors believe inflation is going to stick around, they will demand higher yields, which pushes mortgage rates higher.
For those waiting for rates to fall below 6%, there is good news: Analysts expect rates to ease enough to fall below 6% this year.
However, those hoping for a 2-3% mortgage interest rate, well, keep hoping. Most economists say it would take another economic crisis for Americans to see those rates again.
How is the housing market supposed to be in 2026?
Interest rates are only one part of the housing market. Forecasters expect those looking to sell to see stable to modest price increases this year. However, don’t expect the high price increases seen a few years ago.
Experts say those looking to sell fast need to have competitive pricing and time the market to secure a strong outcome.
Those looking to break into the housing market can expect a more balanced environment, according to Forbes. Experts believe home prices should be slightly more affordable for buyers, but don’t expect prices to plunge. A median-priced home in the U.S. currently costs about $415,000.
Housing inventory has grown from pandemic lows, giving buyers more options and a wider range of choices. Despite elevated mortgage interest rates, overall, forecasters expect the housing market to grow slowly next year, with sales rising and home prices rising moderately.
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Ella Rae Greene, Editor In Chief
