The housing market is ‘stuck’ until at least 2026, Bank of America warns
What causes the current high mortgage rates?
The current high mortgage rates are caused by several factors, including inflation, economic growth, Federal Reserve policies, and investor sentiment. Inflation erodes the purchasing power of money, leading lenders to adjust mortgage rates to maintain profitability. Economic growth and a strong job market can also lead to higher mortgage rates, as increased demand for homes puts upward pressure on rates. Additionally, Federal Reserve policies, such as raising the federal funds rate, can indirectly influence mortgage rates6. Finally, investor sentiment and demand for mortgage-backed securities can also impact mortgage rates.
How long could the lock-in effect potentially last?
The lock-in effect could potentially last for another six to eight years, according to Bank of America. This is due to the historically low mortgage rates of people who already own homes and the elevated rates for new buyers. The bank does not expect this gap to shrink much for several years.
What is the "lock-in effect" and its impact on housing supply?
The "lock-in effect" refers to homeowners being unwilling to sell their homes due to high mortgage rates, preferring to keep their current low-rate mortgages. This reduces the housing supply, making it difficult for homebuyers to find a home, and potentially keeping home prices high.