A mortgage written at a generational low is not merely a cheap loan. It is a financial asset that happens to be attached to a particular building, and the only way to realise its value is to keep living in the building.
That is the whole of the lock-in problem, and it explains a housing market that otherwise looks contradictory: prices holding, transaction volumes depressed, and inventory scarce in places with no shortage of houses. The houses exist. The people in them have arithmetic reasons not to leave.
The barrier is the payment, not the price
Consider the household most affected, which is not the one usually described. It is not stretched. It bought before rates moved, holds a payment that consumes a modest share of income, and has substantial equity. On paper it is the most mobile household in the market.
In practice it is the least. Moving to an equivalent house at current financing means a payment that may be half again what it pays now for the same square footage — and that gap is not closed by the equity, because the equity was already going to be the deposit. The household is not choosing between houses. It is choosing between its current payment and a materially worse one for no improvement in what it lives in.
The consequences run well past housing. Labour mobility depends on people being able to follow work, and a household that cannot move without a large permanent pay cut in the form of a housing payment will decline a job that requires relocation. Employers report this directly, and it lands hardest on mid-career hires — the people with the mortgage, rather than the graduates without one.
It also freezes the housing stock in the wrong configuration. Older owners who would ordinarily downsize are staying in larger houses because the smaller one costs more per month, which removes exactly the family-sized properties the next cohort needs. That is a supply problem produced entirely by financing, and it is immune to the remedies aimed at construction — states can go on overruling their cities on housing supply and it will not unlock a single house whose owner is staying put for the coupon.
Two other lines are making the calculation worse in the same direction. A move resets the assessment, so an owner protected by a long-standing valuation gives that up as well, which is the property tax bill catching up with the housing boom applied at the moment of sale. And in much of the country the new policy on the new house costs considerably more than the old one, because insurance has been behaving like a second inflation throughout.
None of this resolves quickly. It unwinds as rates fall far enough that the replacement payment stops being punitive, or as the original loans are eventually retired, and both are measured in years rather than quarters. In the meantime the market is not frozen by pessimism. It is frozen by a rational decision, repeated several million times.
