How Significant Is the Lockout Effect?

Fleming: “While it’s not a large factor today, [the lockout effect] could become more significant as we approach, and/or exceed, 5% for the mortgage rate, which is not expected until late this year or early next.”

IRVINE, CA—While not a large factor today, the lockout effect could become more significant as we approach and/or exceed a 5% mortgage rate, which is not expected until late this year or early next, First American Financial Corp.’s chief economist Mark Fleming tells GlobeSt.com. In his monthly Potential Home Sales model and analysis for December 20016, Fleming highlighted the impact of rising rates on market potential and prices. One of his comments was, “One thing to watch for in 2017 is evidence of a ‘lockout effect,’ where homeowners are hesitant to sell their home if their mortgage rate is lower than the current market rate.”

Fleming also noted, “The market potential for existing-home sales fell 3.1% between November and December due to the post-election rate increase, offsetting increased demand caused by the strength of the broader economy, particularly wage growth and improving access to credit. However, the market continues to underperform its potential due to the highly limited inventory. He added that the low inventory of homes for sale continues to be a concern, since it is “putting upward pressure on house prices and could counteract the downward price pressure caused by higher mortgage rates.”

We spoke with Fleming about the lockout effect and how much it will influence home-sales inventory as interest rates rise.