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The Impact of Lower Mortgage Rates on Housing Inventory

The Impact of Lower Mortgage Rates on Housing Inventory


The recent decline in mortgage rates not only spells good news for prospective homebuyers in terms of affordability but may also signal a positive shift in the real estate market. The lowering of mortgage rates appears to be encouraging more homeowners to reconsider selling their properties, a trend that could potentially provide an increased inventory for those looking to buy.

The Mortgage Rate Lock-In Effect:

Over the past year, the housing market has faced a shortage of available homes, a phenomenon attributed to the rate lock-in effect. As mortgage rates rose, many homeowners opted to postpone selling their homes, choosing to retain their lower mortgage rates instead of moving and taking on higher rates for a new property. This trend limited the options available to potential buyers in the market.

A Shift in Seller Behavior:

Recent data from Realtor.com indicates a noteworthy change in the market. In December 2023, there was an increase in new listings compared to the same period in the previous year. See graph below:

Traditionally, the housing market experiences a slowdown in activity towards the end of the year, with sellers often delaying their listings until the beginning of the next year. This recent surge in new listings during the typical lull period suggests a potential easing of the rate lock-in effect due to the decline in mortgage rates.

Implications for Homebuyers:

While this shift may not lead to an immediate abundance of housing options, it does suggest a positive trend. The Joint Center for Housing Studies (JCHS) notes that

"a reduction in interest rates could mitigate the rate lock-in effect, providing homeowners with a renewed incentive to sell. As interest rates continue to decline, the barrier to moving decreases, potentially prompting more homeowners to list their properties. This, in turn, offers homebuyers a broader selection of homes to consider."


The downward trend in mortgage rates appears to be having a positive impact on the housing market by encouraging more homeowners to list their properties for sale. As a prospective homebuyer, this may translate to an increase in housing options and opportunities to find the ideal home. To stay informed about the latest listings and market developments in your area, it's advisable to connect with a local real estate expert who can guide you through the evolving landscape of the real estate market.