The “Golden Handcuffs” Effect: How Rising Mortgage Rates Are Locking Up the Housing Market
The U.S. housing market is experiencing what economists refer to as the “golden handcuffs” effect—a unique situation where homeowners feel stuck in their current homes due to low mortgage rates secured during the pandemic. While it may seem like a good problem to have, this effect is creating challenges across the real estate market, making it difficult for homeowners to move, buyers to find affordable homes, and renters to transition into ownership. In this article, we’ll explore the root causes, impacts, and ways to manage the challenges of today’s market.
What’s Happening with Mortgage Rates?
During the pandemic years of 2020 to 2021, mortgage rates were at historic lows—hovering between 2% and 4%. Many homeowners took advantage of these low rates by refinancing or purchasing homes, locking in affordable monthly payments. On average, a median-priced home during this period came with a monthly payment of $1,100 to $1,300.
However, by late 2023, the landscape had changed drastically. With mortgage rates climbing to around 6.09%, the cost of financing a home has nearly doubled. For the same type of home, the average monthly payment has risen to $2,000 to $2,300. This dramatic increase is putting pressure on buyers, making homes less affordable, and dissuading homeowners from moving—leading to what economists call the “golden handcuffs” effect.
The “Golden Handcuffs” Effect in Action
The “golden handcuffs” effect occurs when homeowners are financially discouraged from selling their homes due to the fear of losing their low-interest mortgage rates. Imagine having a mortgage locked in at 3%, only to discover that a new loan for a comparable property would now come with a 6% interest rate. This change could double your monthly mortgage payment, even if the price of the new home is similar to the old one.
This dilemma leaves many homeowners reluctant to sell, even if they need to move for personal or financial reasons. This situation has caused gridlock in the housing market, as fewer homes are listed for sale, and the flow of transactions has slowed to a crawl.
800,000 Moves Deferred—What It Means for the Market
According to the National Bureau of Economic Research (NBER), approximately 800,000 moves were deferred between Fall 2022 and Q3 2023 due to rising mortgage rates and reduced affordability. These moves—typically prompted by growing families, job changes, or downsizing—are now being postponed, creating even more pressure on the housing market. This affects not only homeowners but also renters, property managers, and professionals in the real estate industry who rely on steady transactions to support their businesses. You can access the NBER study here.
How the Market Gridlock Impacts Everyone
This lack of movement in the market has ripple effects across the real estate ecosystem:
Sellers: Homeowners are holding off on selling their properties, reducing the number of available homes on the market.
Buyers: Fewer homes on the market mean higher competition and prices, pushing many would-be buyers out of the market.
Renters: With fewer affordable homes available to purchase, renters are forced to stay in rental properties longer, increasing demand and driving up rents.
Investors: The limited inventory and high costs make it challenging for real estate investors to acquire properties and grow their portfolios.
Why Aren’t Home Prices Dropping?
With fewer buyers able to afford homes, you might expect prices to drop. However, home prices have remained relatively stable or even increased in many areas. This is primarily due to the limited supply of homes for sale.
New construction has lagged behind demand for years, and with fewer existing homes entering the market, the inventory shortage persists. Additionally, the costs of building materials, labor, and land have increased, making it more expensive to develop new properties. This has kept home prices high, despite rising interest rates and reduced affordability.
What Does This Mean for You?
Homeowners: You may need to be patient and stay informed about market changes, but you’re not without options. There are ways to navigate the current environment without giving up your low-interest mortgage. If you’re considering your next move, reach out to explore tailored solutions—we’re here to help you make the best choice for your situation.
First-Time Buyers: It’s still possible to find opportunities if you stay focused and prepared. Keep an eye on the market, save aggressively, and build your credit so you’re ready to act when the right opportunity arises.
Renters: This is a good time to focus on financial stability. Build your savings and improve your credit to position yourself for homeownership when the market shifts in your favor.
Investors: Strategic thinking is essential in this market. If you’re unsure of your next move, we’re here to guide you through current challenges and help you identify opportunities that align with your investment goals.
Let’s Connect
The housing market may feel challenging, but you don’t have to face it alone. Whether you're a homeowner, buyer, or investor, there are ways to make the most of today’s market. Reach out to us—we’re ready to help you explore your options and navigate this complex environment. Let’s help turn those golden handcuffs to Golden Bracelets.
Final Thoughts: The Market Will Shift—Be Ready
The “golden handcuffs” effect has created unique challenges in the housing market, but conditions will eventually change. Mortgage rates may fall, new housing supply could come online, and opportunities will arise. The key is to stay informed, plan ahead, and be ready to act when the time is right.
By understanding these trends, you’ll be better prepared to make informed decisions that align with your financial goals. Whether you’re looking to sell, buy, rent, or invest, opportunities will come—and when they do, you’ll be ready.
