The Mortgage Lock-In Effect Is Finally Fading. Here's What That Actually Means

Something big just shifted in the housing market, and most people haven't noticed yet.

For the first time since the pandemic era, there are now more homeowners with mortgage rates above 6% than borrowers locked into sub-3% rates. That's not just a statistic. That's the beginning of the end of the lock-in effect that's been strangling housing inventory for the past three years.

If you've been watching the housing market, waiting for more homes to come on the market, or wondering when sellers will finally start moving again—this is the shift you've been waiting for.

But here's what most headlines won't tell you: This doesn't mean the floodgates are about to open. And it doesn't mean prices are about to crash. It means the market is slowly, gradually normalizing in ways that create real opportunities for people who understand what's actually changing.

Let me walk you through what the fading lock-in effect means, who it helps, who it hurts, and how to make decisions based on this new reality instead of outdated assumptions.

What the Lock-In Effect Was (And Why It Mattered)

The lock-in effect was simple: millions of homeowners had mortgage rates so low that moving would mean doubling or tripling their monthly payment.

If you locked in a rate at 2.8% during the pandemic, your monthly payment on a similar-sized home at 6.5% would jump by roughly 50% or more. Even if you wanted to upgrade, downsize, or relocate, the financial hit was so severe that staying put was the only rational choice.

This created a vicious cycle. Homeowners didn't sell. Inventory stayed tight. Buyers competed over the few homes available. Prices stayed elevated. And the market stayed stuck.

Young buyers couldn't find starter homes because older homeowners weren't selling theirs. Move-up buyers couldn't upgrade because inventory at every price point was scarce. And the entire market felt frozen.

Now, that's changing. Not overnight. But definitively.

What Just Changed (And Why Now)

According to real estate investor Nick Gerli, as of the end of 2025, more homeowners now have mortgage rates higher than 6% than borrowers with sub-3% rates. That marks a tipping point.

Why does this matter? Because homeowners with higher rates don't face the same financial penalty for moving. If you have a 6.2% mortgage and current rates are 6.1%, there's no payment shock. You can move without destroying your budget.

This shift happened because of two forces working together:

Time is eroding the low-rate advantage. Every month, more people with ultra-low rates either sell, refinance, or pay off their homes. And every month, more new buyers take on mortgages at current rates. Eventually, the math flips—and it just did.

Rates have stabilized in the low-6% range. Mortgage rates are currently averaging around 6.09%, down from nearly 7% a year ago but nowhere near the 3% pandemic lows. This stabilization means people can plan around a predictable rate environment instead of constantly waiting for better conditions.

Together, these forces mean the lock-in effect is fading. Not gone. But fading. And that changes everything about how the market will function in 2026 and beyond.

What This Means for Housing Inventory

The lock-in effect kept millions of homes off the market. Now that it's fading, inventory should gradually increase.

But don't expect a flood. Here's why.

Not everyone with a higher rate needs to move. Many people are in homes they like, in neighborhoods they love, with payments they can afford. The fading lock-in effect gives them the option to move—it doesn't force them to.

Life events still drive most moves. Job changes, family growth, downsizing, relocations—these are what actually push people to sell. The lock-in effect suppressed these natural moves. Now they can happen again. But they'll still happen gradually, not all at once.

More than 30 million homeowners don't have a mortgage at all. About 40% of homeowners own their homes outright, up from 33% in 2010. These homeowners were never locked in by rates. Their selling decisions are driven by entirely different factors.

What this means: Inventory will improve. Buyers will have more options. But the market won't flip from scarce to abundant overnight. It will rebalance gradually over months and years, not weeks.

Already, for-sale inventory is up roughly 9% compared to 2025. And pending home sales jumped 25.7% week-over-week after the holiday period. These aren't dramatic surges, but they're signs of movement returning to the market.

What This Means If You're Buying

If you've been frustrated by limited inventory and intense competition, the fading lock-in effect is good news. But it doesn't mean you should wait for some perfect moment.

More Homes, But Not Overnight

Inventory is improving, but the improvement will be gradual. Don't expect 2019 levels of choice anytime soon. The best opportunities in 2026 will still go to buyers who are ready to act when the right home becomes available.

The difference is that "the right home" will show up more often than it did in 2023 or 2024.

Competition Is Easing, But Still Real

The fading lock-in effect means you're less likely to face fifteen competing offers on day one. But you'll still face competition, especially for well-priced homes in desirable areas.

The advantage has shifted slightly toward buyers. For the first time since 2022, buyers are projected to spend less than 30% of their income on housing payments. That's a meaningful improvement in affordability, even if it's not dramatic.

But don't mistake "less intense" for "easy." This is still a competitive market. It's just more workable than it was.

Your Rate Matters, But Not As Much As You Think

Many buyers have been waiting for rates to drop significantly before buying. But here's what the data shows: rates are expected to average around 6.3% in 2026, with projections hovering around 6.2% according to major agencies.

That's not 3%. And it's not 4%. It's the reality you're working with.

The question isn't whether rates will drop to some magical number. The question is whether you can afford the payment you'll have today, and whether that payment still makes sense if rates stay flat or even tick back up.

If you're waiting for sub-4% rates, you might be waiting a very long time. The market is moving forward at current rates. The question is whether you're moving with it.

What This Means If You're Selling

If you've been holding off on selling because of the lock-in effect, this is your moment. But that doesn't mean you can list at any price and expect results.

You Can Move Without the Payment Shock

If you have a rate above 6%, you're no longer trapped. Moving to a similar-sized home won't double your payment. That's liberating. But it also means other sellers with higher rates are thinking the same thing.

Translation: More inventory is coming. And buyers will have more choices. That means pricing and presentation matter more than they did when inventory was at rock bottom.

Pricing Discipline Is Critical

The shift from a seller's market to a balanced market will continue in 2026. Sellers are walking away from listings at higher rates than normal because they won't adjust on price.

Don't be that seller.

Buyers now have enough options to walk away from overpriced homes. They're not desperate. They're discerning. And if your home isn't priced right, it will sit.

The homes that sell quickly in 2026 are the ones priced accurately from day one. Not "testing the market" high. Not "leaving room to negotiate." Right.

Expect to Make Concessions

Price cuts are becoming more common, especially for lower-cost homes. Sellers who list with inflexible terms or unrealistic expectations may not find buyers willing to meet them.

The good news is that the lengthy average tenure among today's homeowners means many are still walking away with significant gains. But you need to be realistic about the market you're selling into, not the one you remember from 2021.

What This Means for the Broader Market

The fading lock-in effect is one piece of a larger normalization process. The housing market is slowly, gradually returning to something that looks like historical norms.

This Isn't a Crash—It's a Rebalance

Some people are predicting a housing crash as inventory increases. But the data doesn't support that.

Home prices are still expected to rise modestly in 2026, with Zillow forecasting around 1.2% growth and Realtor.com projecting 2.2%. That's not explosive growth, but it's not a collapse either.

The market isn't crashing. It's stabilizing. And stabilization is what creates opportunity for informed buyers and sellers.

Affordability Is Improving—Slowly

For the first time since 2020, incomes are expected to grow faster than home prices. That's a meaningful shift after years of prices outpacing wages.

It won't restore broad affordability overnight. A recent analysis suggested it would take a steep drop in mortgage rates to the mid-2% range, a more than 50% jump in household incomes, or a roughly one-third plunge in home prices to restore historical affordability levels. None of those are likely.

But incremental improvement matters. And 2026 marks the beginning of that improvement.

Rents Are Rising Again

As the lock-in effect fades and more people have the option to buy, rental demand may increase for those who still can't afford to purchase. Rents are expected to rise about 2-3% year over year by the end of 2026, roughly matching inflation.

Apartment construction has slowed from its 2021-2022 surge, meaning fewer units are hitting the market and competition for each one is increasing.

For renters hoping to buy, this reinforces the importance of making a move when the numbers work, rather than waiting indefinitely for perfect conditions.

The Opportunities This Creates

The fading lock-in effect creates specific opportunities for people who understand what's changing.

For Move-Up Buyers

If you've been stuck in a starter home because moving would wreck your payment, check your rate. If you're above 6%, the penalty for moving is much smaller than it was. You might finally be able to upgrade without financial disaster.

Run the actual numbers. Factor in your equity, transaction costs, and new payment. You might be surprised at how workable the math is now.

For Downsizers

If you're in a home that's too big but didn't want to move because of your low rate, this shift changes the equation. If your rate is higher, or if you own outright, now might be the time to right-size.

The market is more balanced than it's been in years. You'll have better negotiating power as a buyer, and if you price your home correctly as a seller, you'll find interested buyers.

For First-Time Buyers

The fading lock-in effect means more starter homes will come on the market as current owners finally feel they can move up. That doesn't solve all your challenges, but it does mean more options.

Competition is still real, but it's less brutal than it was. And affordability is improving incrementally. If you've been saving and preparing, 2026 might be the year the math finally works.

For Investors

If you've been waiting for opportunities, the fading lock-in effect creates them. More inventory means more choices. More choices mean better negotiating power. And better negotiating power means finding deals that actually pencil out.

Focus on markets where inventory is increasing faster than demand. Those are the places where sellers will have to compete for buyers, not the other way around.

What to Do With This Information

Here's what I tell clients who ask me about the fading lock-in effect:

If you've been holding off on selling because of your rate, check the math. If you're above 6%, you're not as locked in as you think. Run the numbers. You might be surprised.

If you've been waiting to buy, don't wait for perfect. Inventory is improving. Affordability is improving. Rates have stabilized. If your finances are ready and a home makes sense, this is a better buying environment than we've had in years.

If you're unsure, map it out. Look at multiple scenarios. What happens if you stay? What happens if you move? What if rates stay flat? What if inventory keeps improving? Make decisions based on realistic possibilities, not best-case fantasies.

The fading lock-in effect doesn't guarantee success for anyone. But it creates more pathways to success than existed when the market was frozen.

Final Thoughts

The lock-in effect fading is a big deal. It's the kind of structural shift that changes how the market functions for years to come.

But it's not a magic bullet. It doesn't make housing affordable overnight. It doesn't flood the market with inventory. And it doesn't remove the need for smart, strategic decision-making.

What it does is create movement. And movement creates opportunity.

For three years, the market has been stuck. Buyers stuck without options. Sellers stuck in homes they wanted to leave. The entire system frozen by the unintended consequences of ultra-low pandemic-era rates.

Now, that's changing. Not dramatically. But definitively.

The people who do well in this new market won't be the ones waiting for some perfect moment that may never arrive. They'll be the ones who understand what's actually changing and make informed decisions based on their real situation, not headlines or hope.

If you want to talk through what the fading lock-in effect means for your specific situation—whether you're buying, selling, or just trying to understand if now is the time to act—let's have that conversation. No pressure. No sales pitch. Just clarity about what the numbers show and what your real options are.

Because the lock-in effect is fading. The question is whether you're ready to take advantage of what comes next.

Ready to explore your options in this changing market? Let's discuss your situation