{"id":387180,"date":"2026-01-04T07:24:11","date_gmt":"2026-01-04T07:24:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/387180\/"},"modified":"2026-01-04T07:24:11","modified_gmt":"2026-01-04T07:24:11","slug":"locked-in-homeowners-nevertheless-pay-off-below-4-mortgages-their-share-drops-to-lowest-since-q4-2020","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/387180\/","title":{"rendered":"\u201cLocked-in\u201d Homeowners Nevertheless Pay Off Below-4% Mortgages: their Share Drops to Lowest since Q4 2020"},"content":{"rendered":"

\t\t Slowly unwinding a phenomenon that wrecked the housing market.
\nBy\u00a0Wolf Richter<\/a>\u00a0for\u00a0WOLF STREET<\/a>.<\/p>\n

The share of below-3% mortgages outstanding, by number of mortgages, declined to 20.0% of all mortgages outstanding in Q3, the smallest share since Q1 2021, and down from a share of 24.6% at the peak in Q1 2022 (red in the chart), according to data by the Federal Housing Finance Agency (FHFA).<\/p>\n

The share of below-3% mortgages had exploded from early 2020 through Q1 2022 when the Fed\u2019s interest rate repression \u2013 via trillions of dollars of asset purchases, including mortgage-backed securities (MBS) and 0% policy rates \u2013 created a tsunami of homeowners refinancing their homes to get these new ultra-low interest rates.<\/p>\n

The share of 3% to 3.99% mortgages declined to 31.5%, the smallest share since Q3 and Q2 2019, and beyond that, the smallest share since Q2 2016 (blue).<\/p>\n

\"\"<\/p>\n

All types of mortgages are included here, such as 30-year fixed-rate mortgages, 15-year fixed-rate mortgages, and Adjustable-Rate Mortgages.<\/p>\n

Combined, the share of below 4%-mortgages dropped to 51.5% of all mortgages outstanding, the lowest since Q4 2020, as homeowners, facing changes in life \u2013 new job in a different city, divorce, growing family, death, etc. \u2013 ever so reluctantly sell their home and thereby let go of these ultra-low interest-rate mortgages.<\/p>\n

At the peak in Q1 2022, over 65% of all mortgages outstanding had interest rates below 4%.<\/p>\n

\"\"<\/p>\n

The share of Adjustable-Rate Mortgages has been hovering at low levels since 2021, and dipped in Q3 to 4.0%, down from over 10% in 2013, the extent of the FHFA\u2019s data.<\/p>\n

Some ARMs had rates below 3% even before 2020, which is one of the factors in why the below 3% mortgages (red line in the top chart) was between 2.5% and 4% before 2020.<\/p>\n

Homeowners with ARMs that were originated when rates were low experienced payment shock when their mortgage rates adjusted as rates began to rise in 2022. But that payment-shock phase has mostly passed by now.<\/p>\n

\"\"<\/p>\n

The share of 4.0% to 4.99% mortgages\u00a0declined to 17.1%, the lowest share in the FHFA\u2019s data going back to 2013, and down from the peak in 2019 of 40%.<\/p>\n

When mortgage rates plunged in 2020, massive numbers of homeowners refinanced their mortgages into lower-rate mortgages \u2013 but not everyone could get a below-4% mortgage.<\/p>\n

Homeowners who had qualified for mortgage rates between 4.0% and 4.99% before 2020 refinanced into the lowest-rate categories. But homeowners who had 6% or 7% mortgages before 2020, due perhaps to a tarnished FICO score, also refinanced into mortgages with sharply lower rates, but the lowest rates they might have had available were in this 4% to 5% range.<\/p>\n

In other words, many homeowners refinanced out of this category in 2020-2022 and into lower rates, while a smaller number of other homeowners refinanced from higher rates into this category over the same period.<\/p>\n

\"\"<\/p>\n

The share of 5.0% to 5.99% mortgages\u00a0has remained roughly stable in 2023-2025, near 10% of all mortgages outstanding (blue in the chart below).<\/p>\n

There are currently lots of fixed-rate mortgages offered in this range. For example, the interest rate of the average conforming 15-year mortgage was 5.44% in the latest week, according to Freddie Mac, but 15-year mortgages are not very popular.<\/p>\n

The share of 6%-plus mortgages\u00a0rose to 21.2% of all mortgages in Q3, the highest since Q3 2015, up from a share of 7.3% at the low point in Q2 2022 (red in the chart).<\/p>\n

\"\"<\/p>\n

\u201cLocked in\u201d by Free Money. Below 3%-mortgages are free money in real terms because\u00a0inflation is currently running at about 3%, and if borrowing costs run at the rate of inflation or below, it\u2019s the equivalent of borrowing money at no cost \u2026 free money.<\/p>\n

These ultra-low mortgages were a result of the Fed\u2019s reckless monetary policies that caused home prices to explode in many markets by 50% and much more in just two years through mid-2022.<\/p>\n

Those too-high home prices and ultra-low-interest-rate mortgages have now\u00a0locked up part of the housing market \u2013 with those homeowners not selling and therefore not buying because they don\u2019t want to finance a more expensive home with much higher interest rates.<\/p>\n

This \u201clock-in effect\u201d has haunted real-estate brokers, mortgage brokers, and mortgage lenders\u2013 as transactions and mortgage originations have plunged, and therefore income from commissions and fees has plunged, triggering waves of mass-layoffs and voluntary departures since late 2021<\/a>.<\/p>\n

\"\"<\/p>\n

Nevertheless, life happens \u2013 new job, return-to-the-office mandate, divorce, family additions, death, natural disasters, whatever \u2013 and so some of those \u201clocked-in\u201d homes with ultra-low-interest-rate mortgages get sold anyway, and the mortgages get paid off, and their share shrinks slowly, unlocking the housing market bit by bit.<\/p>\n

Just how crazy were those ultra-low mortgage rates?\u00a0\u00a0Between early 2021 through 2022, the average 30-year fixed mortgage rate was below CPI inflation \u2013 negative \u201creal\u201d mortgage rates \u2013 free money!<\/p>\n

At the peak of the Fed\u2019s craziness, \u201creal\u201d mortgage rates were 4 percentage points below CPI, with the average 30-year fixed mortgage rate below 3% and CPI inflation exceeding 7%.<\/p>\n

Those were the craziest times ever in the mortgage market, and in the housing market, and those negative real mortgage rates wrecked the housing market through a historic home price explosion (now\u00a0being unwound in many markets)<\/a>.<\/p>\n

\"\"<\/p>\n

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:<\/p>\n

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\"\"<\/p>\n

WOLF STREET FEATURE: Daily Market Insights by Chris Vermeulen, Chief Investment Officer, TheTechnicalTraders.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Slowly unwinding a phenomenon that wrecked the housing market. By\u00a0Wolf Richter\u00a0for\u00a0WOLF STREET. The share of below-3% mortgages outstanding,…\n","protected":false},"author":2,"featured_media":387181,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46],"class_list":{"0":"post-387180","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/387180","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=387180"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/387180\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/387181"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=387180"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=387180"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=387180"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}