The Magic Mortgage Rate Number to Tip the Housing Market

Homeowners with a mortgage rate above this number are almost twice as likely to sell their home.

Illustration of home with large percent sign and calculator.
(Image credit: Getty Images)

A new survey from Zillow found the “mortgage rate tipping point” at which homeowners are likely to sell their homes. According to the survey, homeowners with a mortgage rate above 5% are almost twice as likely to say they plan on selling their home in the next three years than those paying a rate below 5%. 

As the Fed continues to raise the federal funds rate in an attempt to combat inflation, consumers are facing higher commercial interest rates, especially mortgage rates. As of August 2, the average 30-year mortgage rate is 6.81%, compared to 6.78% last week and 5.54% a year ago. This is lower than the long-term average of 7.74%. Additionally, the average interest rate for a 15-year fixed mortgage is 6.11%, up from 6.06% a week ago and up from 4.75% last year.  

Use our tool, in partnership with Bankrate, to compare current mortgage rates available for purchase and refinancing, and check out our mortgage calculator to determine your monthly payment, 

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The survey found that about 80% of mortgage holders reported having a rate of less than 5%, 90% reported having a rate of less than 6%, and almost a third reported having a rate of less than 3%. Homeowners who already have a relatively low interest rate are hesitant to sell their home and remortgage at a higher rate. 

This reluctance to sell can have an impact on the housing supply. As homeowners are “locked-in” to their current mortgages, “it results in a shortage of housing options, resale supply, homeowner mobility, and places upward pressure on housing prices” according to Zillow. In fact, a survey from Redfin reported that mortgage payments in March hit a high of $2,563, up from $1,988 the previous year. Zillow also reports that current monthly mortgage payments are more than twice as much as they were in 2020 and 13% higher than a year ago. 

Orphe Divounguy, a senior economist at Zillow Home Loans said in the company's press release: "We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices."  

However, as inflation cools down and more mortgages drop into the 5% range, housing inventory could go up. Zillow found that 23% of homeowners are considering selling their home in the next three years or currently have their home listed for sale. This is much higher than last year, when only 15% of homeowners reported the same. Nearly 40% of homeowners considering selling their home in the next three years have mortgage rates above 5%. 

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Erin Bendig
Personal Finance Writer

Erin pairs personal experience with research and is passionate about sharing personal finance advice with others. Previously, she was a freelancer focusing on the credit card side of finance, but has branched out since then to cover other aspects of personal finance. Erin is well-versed in traditional media with reporting, interviewing and research, as well as using graphic design and video and audio storytelling to share with her readers.