Select housing markets set to ‘unlock’ if mortgage rates drop

Four years after mortgage rates surged from their COVID-19 pandemic-era lows, the national housing market remains stuck. However, an “unlocking” is on the horizon for a select group of metros across the Midwest and South if borrowing costs continue to retreat.

The average rate on 30-year fixed home loans fell to 6.01% on Thursday, a three-year low that is beginning to close the “rate gap” for sellers and restore purchasing power for buyers.

Researchers at Realtor.com® parsed recent housing data to identify local markets where buyers and sellers alike would see the most pronounced and immediate benefits from falling mortgage rates.

To do that, they focused on three criteria: elevated current borrowing costs; narrow payment gaps (the disparity between a homeowner’s existing mortgage and the cost of a new loan today); and areas where sales activity has been sluggish lately.

“The closer the market mortgage rate moves to the interest rates held on outstanding mortgages, the more a local market will be ‘unlocked,’ so to speak,” explains Realtor.com senior economist Jake Krimmel.

Essentially, a market where the typical homeowner has a 4.3% mortgage rate is more likely to unlock than one where the median rate is 3.5%. The smaller gap between their current rate and today’s 6.01% lowers the financial hurdle to moving.

While the national median for outstanding mortgages sits between 3% and 4%, homeowners in five major metros—Detroit, Cleveland, Memphis, TN, Jacksonville, FL, and Dallas—hold higher rates estimated at 4.1% to 4.3%, putting them slightly closer to today’s market rate.

“While we are unlikely to see the mortgage rates in that range for some time, every move closer to parity counts,” adds Krimmel.

Cleveland’s housing market is primed to unlock

Mike Valerino, CEO of Akron Cleveland Association of Realtors, tells Realtor.com that sub-6% rates represent the psychological and financial tipping point for Cleveland’s sidelined buyers and sellers ready to reenter the market.

“The reason Cleveland could unlock faster than other major metros is affordability elasticity,” he explains. “Our median home price is far below coastal markets, so even a 1 percentage-point rate drop significantly expands purchasing power.”

Cleveland is in the heart of the Midwest, where higher interest rates especially constrained new listings through the lock-in effect since 2022, according to the latest housing report from Realtor.com.

Earlier modeling showed that if rates decrease from 7% to 6%, more than 43,000 additional households in the Cleveland metro could afford the median-priced home, significantly boosting sales activity.

“In higher-cost markets, a rate drop doesn’t move the needle as dramatically because price levels remain the dominant constraint,” adds Valerino. “In Cleveland, rates are the constraint.”

According to Valerino, many homeowners in Northeast Ohio are sitting on significant equity and have delayed selling because they do not want to give up a 3% mortgage, representing a textbook example of the “lock-in effect.”

“When rates soften, the first wave is typically move-up buyers—households that need more space or lifestyle changes but have been rate-locked,” he says. “That move-up activity naturally creates starter home opportunities because every transaction tends to free up another home.”

Cleveland’s median buyer income is around $88,700, and the median listing price in January stood at just $247,115, well below the national figure, keeping entry-level homeownership within reach of the typical household.

If rates dip as inventory climbs, Valerino expects the Cleveland market to thaw. The resulting increase in listings and sales—combined with a cooling pace of price growth—would finally allow renters to buy and locked-in owners to trade up.

Cleveland and the other four markets on the list boast below-average payment gaps, meaning smaller moving costs for buying the typical home. As mortgage rates decrease, that gap shrinks. This means moving gets less costly and raises the likelihood of higher inventory levels and sales.