Homeowners who locked in ultra-low interest rates during the housing market boom are now slowly unlocking the market as they reluctantly sell their homes. The share of below-4% mortgages outstanding has dropped to its lowest since Q4 2020, as homeowners face life changes that force them to sell. This phenomenon, which wreaked havoc on the housing market, is now unwinding. At the peak in Q1 2022, over 65% of all mortgages outstanding had interest rates below 4%. However, the share of below-3% mortgages has declined to 20.0% in Q3, the smallest share since Q1 2021. The share of 3% to 3.99% mortgages has also dropped to 31.5%, the smallest share since Q3 and Q2 2019. The share of Adjustable-Rate Mortgages has been low since 2021, and dipped to 4.0% in Q3. Some ARMs had rates below 3% even before 2020, which is one of the factors in why the below 3% mortgages were between 2.5% and 4% before 2020. Homeowners with ARMs that were originated when rates were low experienced payment shock when rates began to rise in 2022, but that phase has mostly passed. The share of 4.0% to 4.99% mortgages has declined to 17.1%, the lowest share in the FHFA’s data going back to 2013. The share of 5.0% to 5.99% mortgages has remained roughly stable in 2023-2025, near 10% of all mortgages outstanding. The share of 6%-plus mortgages rose to 21.2% of all mortgages in Q3, the highest since Q3 2015. These ultra-low mortgages were a result of the Fed’s reckless monetary policies that caused home prices to explode in many markets by 50% and much more in just two years through mid-2022. However, life happens, and some of those "locked-in" homes with ultra-low-interest-rate mortgages get sold anyway, and the mortgages get paid off, unlocking the housing market bit by bit.
