During the post-pandemic housing market, homebuyers enjoyed sub-3% rates, leading to a wave of home buying among younger generations. But over the next few years, the American dream crumbled as mortgage rates and home prices rose, and inflation and wage stagnation set in.
This meant that more US homeowners had mortgage rates below 3% compared to current rates of 6%, creating a lock-in effect where current homeowners refused to give up their low mortgage rates and sell their homes only to turn around and face a much higher mortgage rate.
But now there’s a crack in the lock-in effect: Real estate investor and Reventure CEO Nick Gerli recently said that as of the end of 2025, there are now more homeowners with mortgage rates above 6 percent than borrowers locked into rates below 3 percent, ending one of the most generous eras for home financing in modern history.
“Something big just happened in the US housing market,” Gerli wrote in an X post on Jan. 3, referring to the shift in the share of homeowners with mortgage rates below 3 percent. This means that “the dreaded mortgage rate ‘lock-in’ effect is fading.”
During the lock-in period, millions of existing homeowners with ultra-low rates were financially dissuaded from moving or trading up, meaning buying a more expensive or larger home, which limited the number of homes for sale to potential buyers. This led to bidding wars by younger generations for a limited pool of starter homes and kept many locked out of the market. In fact, the average age of first-time homebuyers has skyrocketed to 40 in 2025, according to the National Association of Realtors, and the share of first-time homebuyers has dropped to a record low of 21%.
“The historically low proportion of first-time buyers underscores the real-world consequences of a housing market starved of affordable inventory,” Jessica Lautz, NAR’s deputy chief economist and vice president of research, said in a statement. “The share of first-time buyers in the market has fallen by 50% since 2007, just before the Great Recession.”
But all that could change, Gerli said, as fewer homeowners have attractive mortgage rates below 3 percent.
“Since more existing owners have a higher rate, that means more have a payment and rate closer to ‘market,'” he explained, “which means there will be more incentive to sell — which is actually good news.” Gerli analyzed Q3 2025 data from Fannie Mae’s mortgage database.
Gerli’s analysis shows that the share of mortgages with rates of 6 percent or higher has risen from about 7 percent in 2022 to about 20 percent by the end of 2025, overtaking the once-dominant group of pandemic-era borrowers with rates below 3 percent. Those pandemic-era loans peaked at nearly 25 percent of all outstanding loans in 2021, the analysis shows, but that share has steadily declined as new buyers take out higher-cost loans and older-generation buyers move or refinance.
“This is because even in today’s depressed sales and refinancing environment, each year approximately 5-6 million Americans take out a new mortgage, now at rates above 6%,” Gerli explained.
Meanwhile, mortgage rates have fallen from their highs in 2023-2024, peaking at 8% in October 2023. Today, the 30-year fixed average is hovering around the low 6% range – still more than twice the very attractive rates of the pandemic era.
Of course, Gerli’s analysis does not mean that he is predicting that mortgage rates themselves are falling. In addition, economists and real estate experts say a full return to sub-3% lending is unrealistic and unlikely to happen again, barring a major economic or world event.
“The circumstances that led to sub-3% rates in the past 2020-2021 were a worldwide, once-in-a-lifetime (hopefully) pandemic,” Max Slyusarchuk, CEO of A&D Mortgage, said recently. wealth. Meanwhile, “the last time we saw an increase of more than 50% in average wages was probably after World War II, and I think it took more than two decades to achieve.”
But Gerli argues that even a sustained move below 6% could be enough to unlock frozen inventory as current owners finally feel comfortable trading up or down.
“Expect as a result an increasing pressure on new listings and inventory in the coming years,” he said.
Additionally, more than 30 million homeowners don’t have a mortgage right now, and the share of homeowners who don’t have a mortgage payment will rise to 40 percent in 2023, up from 33 percent in 2010. That reflects a trend toward total home ownership and conservative lending, according to a July Goldman Sachs note. While this is good for home owners alone, it is a warning sign for buyers competing with older, equity-rich households.
This imbalance also explains why more than 75 percent of homes on the market are now unaffordable for the typical household, according to a recent Bankrate analysis, which found that most Americans are $30,000 short of what it takes to afford a median-priced home. Americans now need at least a six-figure salary to comfortably own a typical home in most markets, but the average salary is about $64,000.
“When only a portion of the market is accessible to the average household, home ownership starts to feel less like a milestone and more like a luxury,” said Bankrate data analyst Alex Gailey. “It’s no surprise that one in six would-be homeowners have left in the last five years.” Another Bankrate analysis from September 2025 shows that one in six would-be homeowners have given up on finding a home to buy altogether.
That means mortgage rates — combined with home prices that are 50 percent higher than they were before the pandemic — are changing what a starter home means to new buyers. Higher borrowing costs mean that buyers today can afford about 30% to 40% less home than they could in 2021. This has forced many potential buyers to adjust their expectations, move to cheaper cities or delay home ownership altogether.
Indeed, coastal cities like New York, Los Angeles, Miami, San Francisco, San Diego and San Jose have become so expensive that even a 0% mortgage rate would not be enough to make a median-priced home affordable for a household earning the local median income, according to an August Zillow report. And Zillow economic analyst Anushna Prakash said that’s “unrealistic” given the massive drop it would take to get there.
“While lower rates certainly help, they are only one piece of a much more complex puzzle that includes inventory shortages, stagnant wages and rising insurance and tax costs,” PenFed Credit Union CEO James Schenck previously said. wealth. “In other words, housing affordability is about more than just the Fed — it’s about the entire ecosystem of access and equity.”
And economic forecasts offer only modest relief for mortgage rates and housing affordability. While housing analysts expect mortgage rates to fall slightly in 2026 compared to 2025, that won’t make a massive difference to housing affordability. A recent analysis based on Realtor.com data shared with Fortune suggested that it would take one of three unlikely changes to restore overall affordability: a steep drop in mortgage rates to the mid-2 percent range, a more than 50 percent increase in household incomes, or a roughly one-third drop in home prices.
“We see the housing market remaining relatively stagnant with no major progress on affordability until we see income growth accelerate rapidly — unlikely — mortgage rates fall very materially — unlikely — home prices fall significantly — unlikely,” said Sean Roberts, CEO of offsite construction company Villa. wealth.
This story was originally featured on Fortune.com
