American Banker, September 22, 2023, Rate ‘Lock-in’ Effect Is Hurting Housing And Mortgage Markets, Powell Says
Federal Reserve Chair Jerome Powell acknowledged that the so-called “lock-in” effect has contributed to stagnation in the mortgage lending market and the nation’s broader housing woes, but he said he doesn’t regret the central bank’s monetary policy moves that played a major role in the problem.
By some estimates, more than 90% of homeowners have locked in mortgage rates below 6%, with many paying less than 4% on loans made while the Fed held interest rates near zero. The disparity between those rates and current market rates, currently north of 7%, is discouraging some homeowners from selling their properties out of a fear of taking on a more expensive mortgage to purchase their next home.
Powell said that dynamic is “one of the explanations for what’s happening broadly in the [housing] market,” but it likely would not make the Federal Open Market Committee think twice about bringing interest rates to their lower bound again, should economic conditions warrant such a move.