The housing market is at a turning point: the 3% mortgage era is fading

For the first time, the number of homeowners with mortgages above 6% has outpaced those with borrowing rates under 3%, according to Realtor.com's latest report on the lock-in effect. The last time rates were under the 3% threshold was between July 2020 and September 2021. Rates haven't fallen below this threshold since 1971. Since September 2022, rates have remained above 6%, keeping many would-be sellers "locked in" to their current rate and keeping potential buyers sidelined, which hindered the U.S. housing supply. With limited inventory and growing competition for homes, home prices remained elevated, which only exacerbated affordability challenges. But that dynamic is starting to change as fewer homeowners have that low borrowing rate. For instance, in the third quarter of 2025, 20% of outstanding mortgages had an interest rate below 3%, Realtor.com senior economist Hannah Jones wrote in a report on the changing market dynamics. TRUMP HOUSING PLAN COULD BRING ‘BIG WIN’ FOR AMERICANS, PULTE SAYS During that same period, 21.2% of outstanding mortgages had an interest rate above 6%. The last time rates were under the 3% threshold was between July 2020 and September 2021. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images)About 31.5% of outstanding mortgages carry interest rates between 3% and 4%. Meanwhile, 17.1% fall in the 4% to 5% range. About 10.2% are between 5% and 6%, according to the data. This underscores how homeowners are taking out mortgages at higher rates versus keeping older loans at ultra-low rates, helping to diminish the pandemic-era "lock-in effect."ESCROW PAYMENTS RISING NATIONWIDE WITH HOMEOWNERSHIP LESS ATTAINABLEJones believes that the rebalancing shows that some households that had delayed moving in anticipation of lower rates jumped when rates softened, "making the timing feel more favorable despite still-elevated borrowing costs." She also believes some buyers were likely able to lock in or refinance below 6%, boosting the 5%–6% share. About 31.5% of outstanding mortgages carry interest rates between 3% and 4%. (Mario Tama/Getty Images)HOUSING MARKET EXPECTED TO OFFER LITTLE RELIEF FOR BUYERS IN 2026 DESPITE MODEST IMPROVEMENTS AHEADThere is still a long way to go before there is a meaningful boost in housing supply. Jones told FOX Business that about 80% of outstanding loans still carry below-market rates, which means those "homeowners would face significantly higher monthly payments if they sold and bought again, keeping them reluctant to move.""Until a much larger proportion of homeowners cycle out of ultra-low-rate loans or rates materially decline, the market will continue to feel the impact of this prolonged lock-in," Jones said. An "Open House" sign outside of a home in Washington, DC, US, on Sunday, Nov. 19, 2023. (Nathan Howard/Bloomberg)The good news is that the market is moving in the right direction with housing supply improving over the past year and beginning to ease the affordability crunch.GET FOX BUSINESS ON THE GO BY CLICKING HEREIn fact, the additional supply has tipped the national market into "balanced" territory, with some local markets being classified as a "buyer’s market," according to Jones. She credited new-construction inventory and new-home share of inventory climbing beyond pre-pandemic levels for helping to fill the gap.