In 2020 and 2021, millions of households locked in a mortgage at a historically low rate, sometimes below 3%. An immense gift. Then rates doubled, and that individual privilege turned into a collective trap: to keep your rate, you stop moving. The market freezes, prices hold, and monetary policy no longer reaches those whose old rate protects them. Yesterday's rate has become a cage, and its lock is a gift.
1 The gift
It begins with a windfall.
The 2021 windfall
A near-free rate, for thirty years
In the US, the typical mortgage is fixed for thirty years. In 2020 and 2021, the collapse in rates let millions borrow at around 3%, sometimes less. Even today, nearly 80% of outstanding mortgages carry a rate below 6%, more than half below 4%, and a fifth below 3%. A colossal advantage, frozen for decades.
Loans under 3%
≈ 20%
of outstanding US mortgages (Redfin, 2025).
Average rate on the stock
≈ 4.4%
vs 6.5% for a new loan (June 2026).
A frozen privilege
As long as you don't move, the rate stays yours. The US mortgage refinances freely when rates fall, but it does not follow its borrower when they move. The advantage is tied to the home, not the person. To keep it, you must stay.
2 The lock
The windfall snaps shut the moment you want to move.
The mechanism
To move is to give up your rate
To buy elsewhere, you need a new loan, at today's rate, around 6.5% in 2026. A household going from 3% to 6.5% would see its monthly payment jump by nearly $1,000 on a median home. So it stays. Economists have measured it: each point of gap between the market rate and the borrower's rate cuts their probability of selling by about 18%.
Golden handcuffs
Yesterday's rate becomes a cage: the lower it is versus the market, the tighter it holds. It is not the debt that detains, but the advantage you would lose by leaving. A lock made of a gift.
3 The frozen market
When no one sells, the market seizes up.
Supply dries up
A housing market at a standstill
If owners stop moving, homes don't come back to the market. The Federal Housing Finance Agency (FHFA) estimates around 1.7 million sales were prevented between 2022 and 2024. Existing-home sales fell to 4.06 million in 2025, the lowest since 1995. Supply grows scarce, not because homes are lacking, but because their occupants are locked in.
Sales prevented
≈ 1.7 M
transactions blocked between 2022 and 2024 (FHFA).
2025 sales
4.06 M
the lowest since 1995 (NAR).
A freeze from above
Usually we fear that no one will buy. Here it is the opposite: no one sells. The market doesn't collapse, it freezes. And a frozen market is almost as dysfunctional as a collapsing one.
4 The price paradox
Higher rates did not lower prices.
The apparent contradiction
Higher rates, rising prices
In theory, higher rates discourage buyers and cool prices. That should have happened, on the order of a 3% fall. But lock-in cut supply so much that the effect reversed: per the FHFA, prices rose 6 to 7%. Scarcity beat the cost of credit.
When scarcity wins
Here is the paradox: the same rate hike meant to calm the market made it dearer, because it locked up supply even more than it discouraged demand. The exact magnitude depends on models and on local market tightness, but the direction surprises: tightening propped up prices.
5 Broken transmission
And the central bank in all this?
Monetary policy
The hike that misses its target
When a central bank raises rates, it wants to slow spending. But the fixed-rate borrower feels nothing: their payment doesn't move. In the US, the average rate on the outstanding stock rose only 0.2 to 0.3 point while the market surged, against 3.2 points in Australia, where variable rates dominate. The hike, instead of biting into consumption, freezes the housing market.
A skewed transmission
①
The fixed-rate cushion. The protected borrower doesn't feel the tightening; the mortgage-credit channel clogs.
②
Freeze instead of bite. Failing to reach households, the hike freezes transactions rather than cooling spending.
③
A cruel asymmetry. The hike locks in, and only a rate cut can reopen the cage. Monetary policy now works in one direction only.
A blunted tool
The central bank strikes, but the blow is cushioned by the fixed rate. The debate is open, and some work plays down this blockage, but one thing remains: the weapon mostly reaches those without a mortgage and would-be buyers, rather than settled owners.
6 Locked in and shut out
The cage does not weigh on everyone equally.
The divide
On one side the protected, on the other the rejected
Settled owners combine a low rate, a stable payment and appreciating wealth. Facing them, first-time buyers confront record prices, scarce supply and high rates: their share has fallen to 21%, a historic low. One generation is locked in, another locked out.
First-time buyers
21%
of buyers, a historic low (NAR, 2025).
Lost mobility
≈ 800,000
fewer moves per year, nearly $20bn lost (NBER).
The cage and the wall
Lock-in also freezes labor mobility: people no longer move for a better job. And it freezes the housing stock itself: empty-nesters staying in large homes, cramped families unable to trade up. The size of the labor effect is still debated, but the stalled stock is plain to see.
7 Why America, and us
This cage is first an American creation.
The anatomy
The loan that builds the cage
Lock-in is so strong in the US because of a singular loan: thirty years, fixed-rate, freely refinanceable but non-transferable. France has a similar lock-in, since its fixed-rate loan is not portable either, but without the free refinancing that relieves Americans. The UK, Australia and Canada, on variable or short rates, escape the trap, at the cost of a hike that hits households fast. Denmark avoids it through an option to buy back its debt.
The exits, and their limits
①
The assumable loan. Take over the seller's loan, and its low rate. Possible for some US government-backed loans, but rare: you must buy out the equity, often out of reach.
②
The portable loan. Carry your rate to the new home, common in Canada and the UK, under study in the US. But it disrupts securitization-based funding and would apply only to future loans.
③
Build, and wait. More new homes bring back transactions; but that takes years and does not open the existing cages.
The French mirror
The French reader is not a mere spectator: the non-portable fixed-rate loan produces a lock-in here too, quiet but real, masked by the culture of buying for life.
8 The key
So how do we get out?
The two exits
The thaw will come from time, not free money
There are only two keys. Either rates fall back toward yesterday's 3 or 4%, and the cage springs open. Or time does its work, and households eventually move for life's reasons. Yet no forecaster expects a return of low rates: the consensus sees them around 6.5% through 2027.
Three certainties
①
No return of free money. Rates would stay in the 6s, far from locked-in levels.
②
A thaw by attrition. Death, divorce, births, job moves: life slowly forces relocations, and the market reopens gradually.
③
Affordability stays strained. Prices at record highs, normalization expected over seven to ten years: the market frees up faster than households regain solvency.
The compass
For the investor: durably scarce supply and propped-up prices, in a market that thaws in fits rather than through falling rates. For the citizen: a cage closing on one generation while its elders keep the key. The real question is not when rates will fall, but how long a society accepts rewarding those who stay and penalizing those who move.
Reference: abbreviations & acronyms used (FHFA, NAR, NBER, bps).