Are Reluctant Home Sellers Too Attached to Their Low Rates?
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You’ve heard of golden handcuffs. That’s when a company compensates you generously to discourage you from taking a job elsewhere.
Some of us restrain ourselves with another type of golden handcuffs: low mortgage rates. Economists dub the phenomenon the “rate lock-in effect.” They say rate lock-in happens when we lash ourselves to the low mortgage rates we got when we bought or refinanced our homes.
So we stay put, even when we long to move up, downsize or relocate.
Rate lock-in is not victimless (and is not the same thing as “locking” an interest rate before closing on a mortgage). It keeps properties off the market at a time when demand for homes exceeds the paltry supply, causing prices to skyrocket and promoting ruthless competition. First-time home buyers are especially disadvantaged because they don’t have equity to convert to down payments.
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