Mortgage rates around 6% to 7% may feel high, but by historical standards, they are hardly unusual.
The bigger distortion is the millions of homeowners still carrying pandemic-era mortgages of 2% to 4%, giving them a powerful financial incentive not to sell.
That “lock-in effect” continues to restrict the supply of homes and may keep the housing market from returning to normal even as inventory slowly improves.
When mortgage rates rise above 7%, as they did again last week, it's easy to blame "high mortgage rates" for the housing market's problems.
But that description misses an important part of the story. Today's rates aren't particularly extraordinary when viewed over several decades. What's extraordinary is what came before them.
Freddie Mac reported that the average 30-year fixed mortgage rate rose to 7.28% for the week ending Oct. 1, up from 7.03% a week earlier and 6.34% a year ago.
Those rates certainly make homes less affordable than they were a few years ago because prices surged when rates were unusually low. But historically, a mortgage rate in the 6% to 7% range isn't unusual. In fact, older homeowners can remember something much worse: Freddie Mac says the 30-year mortgage rate reached a record 18.63% in 1981.
The anomaly wasn't today's 7% mortgage. It was the 3% mortgage.
The pandemic changed homeowners' expectations
During the pandemic, the Federal Reserve's ultra-low interest-rate policies and other economic forces pushed mortgage rates to levels that had never been seen before.
The average 30-year fixed rate reached a record low of 2.65% in January 2021, according to Freddie Mac. Millions of Americans bought homes or refinanced existing mortgages during that period.
That created an unusual situation when rates later returned to more historically familiar territory.
A homeowner with a 3% mortgage who sells a house and buys another one may have to replace that loan with one carrying a rate of 6%, 7%, or more. Even if the new house costs about the same, the monthly mortgage payment could rise substantially. For many homeowners, moving simply doesn't make financial sense.
Millions of homeowners remain locked in
This phenomenon has become known as the mortgage "lock-in effect," and despite the passage of several years, it hasn't disappeared.
In the first quarter of 2026, 19.5% of outstanding mortgages still carried rates of 3% or less, according to Realtor.com. Nearly half — 49.9% — had rates of 4% or less, while nearly four out of five mortgages were below 6%.
That creates an enormous hurdle for the housing market.
A homeowner might want a larger house because the family has grown. An empty-nester might prefer to downsize. Someone might want to move closer to children or take a new job in another city. But selling means surrendering one of the most valuable financial assets many of those homeowners possess: an exceptionally cheap mortgage.
The Federal Housing Finance Agency has attempted to quantify the impact. Its research found that for every percentage point by which prevailing mortgage rates exceed a homeowner's existing fixed rate, the probability of selling falls by 18.1%.
The agency estimated that mortgage lock-in prevented about 1.72 million home sales between the second quarter of 2022 and the second quarter of 2024.
That's a problem for buyers, too
When homeowners don't sell, would-be buyers have fewer houses to choose from. That has helped produce one of the strange features of the post-pandemic housing market: high borrowing costs have reduced demand, but they have also restrained supply.
Normally, higher mortgage rates would be expected to weaken demand and put significant downward pressure on home prices. But when potential sellers are also reluctant to enter the market, the decline in demand can be partially offset by a shortage of available homes.
A July 2026 Federal Reserve Bank of Philadelphia study found that mortgage lock-in continues to cause potential sellers to withdraw from the market, reducing transactions. The researchers also found that buyers are more sensitive to mortgage rates than sellers are to the lock-in effect.
In other words, lower rates could bring more buyers back faster than they persuade owners of 3% mortgages to sell.
The market is slowly changing
There are signs that the freeze is beginning to loosen.
Realtor.com reported that active listings in September totaled about 1.16 million, up 5.4% from a year earlier. Inventory was only 9.1% below typical pre-pandemic levels, the smallest gap since the pandemic.
But new listings remain subdued, and higher rates are hitting buyers. Pending sales were down 4.1% from a year earlier in September, while 20.8% of listings received a price cut.
For the week ending Sept. 26, new listings increased just 0.9% from a year earlier, another indication that homeowners aren't exactly rushing to put their properties on the market.
Time will gradually weaken the lock-in effect. People get married and divorced, have children, retire, inherit homes, relocate for jobs, and encounter other circumstances that make moving unavoidable. Mortgages are also paid off and homes change hands. But it could be a slow process.
What would really unlock the market?
A return to 3% mortgages would certainly do it, but consumers shouldn't necessarily count on that. Those rates were the product of highly unusual economic circumstances.
The more important threshold could be somewhere in the 5% range. Housing experts interviewed by Realtor.com said homeowners with very low-rate mortgages may become considerably more willing to move if prevailing rates settle in the mid-to-low 5% range for an extended period.
Giving up a 3% mortgage for a 7% loan can be difficult to justify; exchanging it for a 5% mortgage is a smaller financial sacrifice. That distinction helps explain why today's housing market isn't simply suffering from "high mortgage rates."
Rates around 6% or 7% have existed many times before and housing markets continued to function. What's different this time is that an enormous share of homeowners already have something much better.
Until enough of those ultra-low mortgages disappear — or today's rates fall close enough to them that homeowners are willing to move — the pandemic's 2% and 3% mortgages could continue casting a long shadow over the housing market.