Housing market sees easing 'lock-in' effect as more sellers enter

The U.S. residential real estate market is showing signs of activity as more homeowners list their properties for sale. This change suggests a reduction in the "lock-in effect," where homeowners hesitate to sell due to low mortgage rates on existing homes compared to higher rates for new mortgages.

Despite 30-year fixed mortgage rates remaining near 7%, many homeowners appear to have adjusted to this environment. Realtor.com Chief Economist Danielle Hale notes, “While rates remain elevated, it is possible that we might be seeing that chiseling effect starting as sellers may grow tired of waiting for significant changes in rates.” Hale adds that the influence of the lock-in effect is diminishing.

January saw a 10.8% increase in new listings compared to last year, indicating a shift away from the lock-in phenomenon. Realtor.com anticipates home sales will rise by 1.5% in 2025 as mortgage rates gradually decrease and time alleviates some market pressures.

Data reveals January's new listing activity was at its highest since 2021, with fresh listings up by 37.5% from December—a record month-over-month increase over five years. Hale explains, “Time and natural turnover could be leading some sellers to make a move this year despite higher rates.”

Overall home inventory rose by 24.6% year-on-year, marking the fifteenth consecutive month of growth with active listings reaching 829,376 and pending listings at 314,545.

However, inventory remains down by nearly a quarter compared to pre-pandemic levels from 2017-2019. Despite increased seller interest, buyers are hesitant; average days on the market were recorded at 73 days—the slowest January since 2020—with homes lingering longer than both last year and last month.

To attract buyers, about 15.6% of sellers reduced asking prices in January—a slight increase from the previous year—and under-contract homes increased by only 1.8%, contrasting sharply with December's larger gains.

Hale attributes part of this slowdown to January’s mortgage rate being slightly higher than December’s rate: “This slowdown is at least partially due to mortgage rates in January that were on average 25 basis points higher than in December.”

The median national list price dropped slightly but smaller home listings contributed significantly to this trend even though per square foot values continued rising.

Regionally, Western states experienced a substantial boost in listings at an increase of over 31%, followed closely by Southern states with an uptick of more than 27%. Denver saw a dramatic surge among large metros alongside Las Vegas and Tucson.

New inventory grew across all regions—most notably in the West—where newly listed homes increased by over one-fifth compared with other areas which saw lesser gains.