Too many owners have affordable mortgages that are worth keeping, which is a problem for the real estate market.

In addition to high mortgage rates and high home prices, lack of existing homes for sale keep new buyers waiting. In a recent CNET Money survey13% of US adults said access to more inventory would help them consider buying homes.

Limited housing supply is partly due to the “rate lock effect”. Homeowners who have locked themselves out historically low mortgage rates At the start of the pandemic, they can’t afford to raise (in some cases double) the interest on their home loans, so they stay put.

Fewer sellers means fewer options for buyers looking for homes on the market. “It’s brutal, it’s very, very tough,” he says Maja Sly, a broker with Keller Williams.

The Federal Reserve he is expected to make his the second interest rate cut this year on November 7, with a quarter of a percentage point (0.25%). But don’t expect dramatically lower mortgage rates anytime soon. In fact, after the Fed’s first rate cut in September, mortgage rates rose nearly 7%. Central bank interest rate decisions influence home loan rates, but do not set them directly.

It will take several months of weaker economic data and further Fed rate cuts for mortgage rates to shrink significantly. As that happens, though, more owners may start packing up and moving, potentially opening up more inventory.

Read more: Mortgage rates of 4 percent could unlock the housing market for most Americans, CNET survey finds

Limited housing inventory and high home prices

The rate lock effect leads to low housing supply in a few different ways. Some low interest landlords just don’t i want to sell their homes, even if they can afford to buy a new one.

But more often than not, continued inflationary pressures and the high cost of living make it impossible for many homeowners to move even if they want to, according to Sly. Those with a Interest rate of 2.5%.for example, they would see their mortgage payments explode if they bought a comparable home today, and not just because of current rates. Housing prices they are also up 47% since the start of 2020.

“Housing prices and inflation have really outstripped incomes,” says Sly.

In CNET Money survey45% of US adults said falling home prices would play a role in their decision to buy a home. In other words, buyers are sensitive to high listing prices and homes aren’t flying off the shelves, he says Vickey Barron, a broker at Compass.

Moreover, prices are caught in the middle of supply and demand: with many buyers and few homes available, prices are rising. Sly says many sellers think they can raise prices even if the quality of the home doesn’t warrant it. And sometimes they can get away with it, especially if people move from high-priced markets to cheaper cities and don’t mind paying.

Another major problem for the housing market? Sellers are usually also buyers. So even as the rate lock wears off, sellers looking for homes for sale could increase competition and drive up prices.

Of course, the other side of the housing inventory equation is brand new residential construction. In the last year, newly built houses have become an increasingly popular option for buyers who can afford it.

Read more: Mortgage rates aren’t the only hurdle for homebuyers. There are not enough houses

What will it take for homeowners to start selling?

Although the Fed interest rate cut by 0.5%. in September is good news, experts agree that it is not enough to get the real estate market out of this jam.

“It’s very positive, but there’s not going to be a tsunami of (sellers) right now,” Barron says.

Fed Chairman Jerome Powell acknowledged this in his remarks on September 18 following the rate cut. “As fares come down, people will start to move more, and that’s probably already starting to happen,” he said.

But he warned that a bigger problem is that the country is not building enough new houses to increase overall supply, which would also reduce pressure on house prices. “This is not something the Fed can really fix,” Powell said.

Sly said mortgage rates will need to fall back into the 4 percent range for people to start selling and moving into new homes. Half of US adults in CNET Money survey said a mortgage rate of 4 percent or lower would allow them to realistically consider buying a home or refinancing.

And a significant 29 percent of survey respondents said there was no mortgage rate that would allow them to realistically consider home buying or refinancing. This highlights the challenges posed by low stock, high house prices and inflation, regardless of interest rates.

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