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Learn how the interest rate lock-in effect is impacting current buyers and sellers and where the market is headed next.

The Fed’s ongoing battle to curb inflation has triggered the highest home mortgage interest rates in more than two decades. In this high-interest rate environment, where can you find sellers who are most likely to sell?

Rick Sharga, long-time distressed property expert and founder of CJ Patrick Company, recently joined me to discuss the rate “lock-in effect.” According to Experian,

"Not to be confused with locking in a mortgage rate, the lock-in effect refers to homeowners choosing to stay in their homes when they otherwise might have moved. With interest rates growing at an aggressive rate, homeowners may feel locked into remaining in their homes, since moving could significantly increase their housing costs."

A shocking number of homeowners are trapped by the ‘lock-in effect

According to Sharga, "We have experienced this before, but we’re currently in a really interesting period right now. We have come through a time where the mortgage rates were at their lowest point ever historically for a number of years. We had millions of owners either buying property, taking out a mortgage, or refinancing their existing mortgage. Today, 93 percent of the homeowners have a mortgage below the rate of 6 percent, and 70 percent of the homeowners have a mortgage rate below 4 percent."

"According to Freddie Mac, we saw mortgage rates double in the space of a few months when the Federal Reserve started raising the federal funds rate at unprecedented speeds."

Sharga went on to explain how the Fed’s continued hiking of the mortgage interest rates, including doubling the rates in only a few months, has created a huge disincentive for people to purchase: someone with a mortgage payment of $2,000 per month 18 months ago would have to pay $4,000 per month for that same mortgage today.

Finding sellers who are least likely to be impacted by the lock-in effect

Sharga’s first recommendation is to pay attention to demographics. The most notable group to focus on are sellers who are 55+ years old. Here’s why:

Boomers are aging out

According to the most recent NAR Profile of Home Buyers and Sellers, 65 percent of the current homeowners are age 55 or older. Many of them own their property free and clear. Even if they don’t, those who have owned their home for over 20 to 30 years often have a tremendous amount of equity locked up in their current residence.

With the youngest boomers turning 59 this year, they’re now encountering life events that will force many of them to move. Whether it’s the loss of a spouse, loss of mobility, a lack of retirement funds, or they simply decide they no longer want the hassle or cost of maintaining a large home, these individuals often have enough equity to pay all cash for their next home. According to Sharga,

"If you’re an agent looking for a listing or if you’re an investor looking for a market opportunity, you should be paying attention to demographics. You should be looking for lists of aging homeowners [REI Source is a great resource] who have been in their property 20 to 30 years. There are a lot of them out there."

Search for those experiencing major life or financial changes

In addition to tracking the boomer demographic, Sharga recommended:

"You should also be looking for people who need to move because they’re the ones who are most likely to list their house in today’s market. [This includes] someone who just got divorced and has had a change in their household income, those who are recently married, those who are having more kids and need more space, or those experiencing financial disruption such as foreclosure."

"What surprises a lot of people is that 92 percent of the people in foreclosure today actually have positive equity in their properties, and 88 percent of people in foreclosure have more than 20 percent equity. For these people, it’s a much better outcome if you can help them sell their property before the foreclosure and protect their equity rather than losing it at the foreclosure sale."

Numerous companies, including and Zillow, have a category for distressed properties. If you want these owners’ contact information scrubbed against the Do Not Call List, check out REDX (Full disclosure: REDX is a sponsor of my Awesome Females in Real Estate Conference).


According to New Western President and co-founder Kurt Carlton, many investors are optimistic about the present market. There’s more inventory available since they’re not as many primary residence buyers in the marketplace, supply chain issues have improved dramatically, and there is an abundance of vacant homes (over 15 million per the 2020 census) that often need an investor to rehab the property before it can be placed on the market. The great news about working with investors is that they often transact multiple times per year, especially if they are flipping or “house hacking” (living in part of their property while they’re rehabbing it).

Cash buyers

Sharga cited the 2023 second quarter statistics from Attom data that show about 38 percent of all residential purchases are all cash.

Cash purchases used to be investor purchases. But that’s not necessarily the case anymore. I think a lot of people are tapping into the equity in their homes. The other data point that supports that is we [homeowners] are sitting on a record amount of homeowner equity [of] about $28 trillion because home prices have gone up so much over the last few years.

We know that about 50 percent of homeowners with a mortgage have a house that’s worth twice as much as what they owe on the loan. So, there’s a lot of equity out there for people to tap into if they are downsizing [right sizing].

Prospect owners with assumable mortgages

An assumable mortgage is a type of financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer. According to Sharga,

So basically, everything stays in place as you take over the property. Whatever the difference is between what’s left of the mortgage and whatever you agree to pay for the property, will have to be made up through a “cash equivalent,” which often ends up being a second mortgage if you don’t have the cash difference.

While most loans underwritten by Fannie Mae or Freddie Mac are not assumable, nor are loans held in private portfolios, as well as most jumbo loans, just about every FHA and VA loan is assumable. So, question number one to ask any homeowner is, “Do you have an FHA or VA loan?”

FHA loans typically account for between 11 and 13 percent of all loans issued [and VA loans account for approximately 10-12 percent. That’s approximately 25 percent of all mortgages].

This does not apply, however, if the homeowner is in foreclosure. These loans are easier to assume when the borrower is not in foreclosure because you don’t have past bills, mechanics liens, and all kinds of other strange stuff tied to back taxes.

What’s ahead?

According to Sharga, builders are the ones benefiting most from today’s market. They have started building homes with smaller footprints at a lower price per square foot to accommodate higher financing costs, and are often willing to buy down the buyer’s initial interest rate.

Every time the Federal Reserve has gone through one of these cycles, where they raise the federal funds rate, and then they stop, mortgage rates have started to come down. So, we may see mortgage rates go up into the high sevens and maybe touch 8 percent. I believe if that happens, it will be very short-lived.

Sharga’s final prediction for 2024 is that it won’t be an especially exciting year, but we can expect to see the bleeding stop. The market will start to come back, and we will be poised for slow growth.

Rising interest rates are at the heart of the slowdown in the housing market. Not just because it’s more expensive for buyers to buy, but it’s very much more expensive for sellers to sell. So once those rates start to come down, the market will start to recover nicely.

Bernice Ross, president and CEO of BrokerageUP and, is a national speaker, author, and trainer with over 1,500 published articles. Learn about her new and experienced agent sales training programs at plus her latest initiative to help women build wealth and secure their financial independence at

September 26, 2023

Randy Byrd, Team Leader & Coach

The Byrd House Team - Brokered by eXp Realty,

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