One of the biggest questions I’m getting right now—from consumers and from the real estate professionals I coach—is pretty straightforward:
What do I think the housing market will look like this fall, and what should we expect in 2027?
It’s also becoming an increasingly difficult question to answer.
At the beginning of 2025, there was widespread expectation that mortgage rates would begin moving lower, affordability would improve, and existing-home sales would finally start breaking out of the historically low levels we had been experiencing.
That didn’t happen.
Going into 2026, we entered the year with many of those same expectations. Yet here we are again, with the average 30-year mortgage rate approaching 7%.
And that means one of the biggest constraints on the housing market remains very much alive: the mortgage lock-in effect.
What Is the Mortgage Lock-In Effect?
During the pandemic and the ultra-low-rate environment that followed, millions of American homeowners refinanced or purchased homes with mortgage rates in the 2%, 3% and 4% range.
Those mortgages have enormous value today.
Consider a homeowner with a mortgage rate of 3.25%. Selling their current home may mean purchasing another property with financing closer to 7%.
Even if they bought a similarly priced home, their monthly mortgage payment could increase substantially.
For many homeowners, the question therefore isn’t simply:
“Would I like to move?”
It becomes:
“Do I want to move badly enough to give up this mortgage?”
For millions of homeowners, the answer has been no.
Millions of Home Sales Never Happened
The impact is significant.
Research co-authored by economist Jonah Coste estimates that the mortgage lock-in effect resulted in approximately 2.6 million lost home sales between 2022 and 2025, and that by the fourth quarter of 2025, home sales were approximately 34% lower because of lock-in.
Earlier research from Coste and his co-authors demonstrated just how powerful this relationship can be. Their analysis found that for every percentage point that prevailing mortgage rates exceed a homeowner’s existing rate, the probability that homeowner sells declines materially.
This isn’t just an interesting economic statistic.
It helps explain one of the strangest characteristics of the housing market over the past several years.
High Rates Have Hurt Demand—but They’ve Also Hurt Supply
Normally, when mortgage rates rise dramatically, we would expect buyer demand to decline.
And it has.
But something else happened at the same time.
Potential sellers disappeared too.
Homeowners who might normally move because they want a larger home, a smaller home, a different neighborhood or simply a lifestyle change are choosing to remain where they are.
That restricts housing inventory.
And limited inventory has helped support home prices even while affordability has deteriorated.
The original FHFA research estimated that the reduction in housing supply caused by mortgage lock-in increased home prices by approximately 5.7%, more than offsetting the downward price pressure created directly by higher interest rates during the period studied.
That is the paradox of today's housing market:
Higher mortgage rates can reduce buyer demand while simultaneously preventing enough homeowners from selling that housing supply remains constrained.
So What Changes the Market?
The obvious answer is lower mortgage rates.
If rates fall meaningfully, the financial penalty associated with moving becomes smaller.
Someone with a 4% mortgage may not be willing to trade it for a 7% mortgage.
Would they move at 6%?
Maybe.
At 5.5%?
For considerably more homeowners, the answer could become yes.
And we don’t necessarily need mortgage rates to return to pandemic-era levels.
Time itself slowly reduces the lock-in effect. People still get married, divorced, have children, retire, relocate for jobs, inherit property and experience all the other life events that create housing transactions.
Economist Jonah Coste recently worked with housing analyst Mike Simonsen on an updated model estimating that mortgage lock-in could still prevent approximately 870,000 transactions in 2026, declining to roughly 820,000 in 2027 as the effect gradually fades.
That suggests normalization may be a process rather than an event.
What Does That Mean for Fall 2026 and 2027?
That’s why I’m cautious about making dramatic predictions.
We entered both 2025 and 2026 believing lower mortgage rates could unlock the housing market.
They didn’t materialize the way many expected.
So as we look toward this fall and into 2027, I believe mortgage rates remain one of the most important numbers to watch—but perhaps even more important is what those rates do to seller behavior.
If rates decline meaningfully, we could see more homeowners willing to give up their existing mortgages, creating more listings and ultimately more transactions.
If rates remain elevated, however, the lock-in effect is likely to remain a significant constraint on housing supply and home sales.
And that limited supply could continue providing support for home values, particularly in markets where inventory is already tight.
The housing market doesn't simply need more buyers.
It needs more sellers willing to move.
Until the economics of moving begin to make sense for millions of rate-locked homeowners, that may remain one of the defining stories of the U.S. housing market heading into 2027.