---
id: "concept-mortgage-lock-in-effect"
type: "concept"
source_timestamps: ["00:05:51", "00:08:18"]
tags: ["real-estate", "interest-rates", "market-dynamics"]
related: ["claim-lower-rates-lower-prices", "contrarian-housing-supply-unlock"]
definition: "A market distortion where homeowners refuse to sell because doing so would require trading a historically low mortgage rate for a much higher current rate."
sources: ["dillian"]
sourceVaultSlug: "jared-dillian-macro-trading-wealth-2026Jun25"
originDay: 6
---
# Mortgage Lock-In Effect

## Definition

A market distortion where homeowners refuse to sell because doing so would require trading a historically low mortgage rate for a much higher current rate.

## Detail

The mortgage lock-in effect occurs when homeowners are disincentivized from selling because they hold a mortgage with an interest rate significantly lower than current market rates.

### Example
A homeowner with a 3% mortgage is 'trapped' in their home if buying a new property requires taking on a 7% mortgage, as the increase in monthly payments would be unaffordable. This dynamic artificially restricts the supply of existing homes on the market.

### Why It Matters
[[entity-jared-dillian]] argues this effect is the primary reason home prices have remained high despite elevated interest rates — the lack of supply has counterbalanced the decrease in buyer demand.

### Empirical Support
FHFA research estimates the lock-in effect prevented **~1.72 million home sales** between 2022Q2 and 2024Q2, and raised prices by an estimated **7.0%** by constraining supply. This validates the *existence* of the lock-in dynamic, though Dillian's stronger conclusion that easing rates will *decrease* prices is more contested — see [[contrarian-housing-supply-unlock]] and [[claim-lower-rates-lower-prices]].

## Related

- [[claim-lower-rates-lower-prices]]
- [[contrarian-housing-supply-unlock]]
- [[claim-mortgage-rates-dropping]]


## Related across days
- [[claim-lower-rates-lower-prices]]
- [[claim-mortgage-rates-dropping]]
- [[contrarian-housing-supply-unlock]]