58% of Mortgages Sit Below 4% Rates

Min 1: Existing Home Sales Stay Frozen Below Five Million

Fannie Mae forecast existing home sales at 4.25 million for 2025, up 4.8% from 2024's 4.06 million but still down 20.3% from 2019 levels. Increased inventory rose 19.1% year-over-year to 1.37 million units as of November according to National Association of Realtors data. Yet elevated mortgage rates above 6% maintained affordability challenges and the lock-in dynamic limiting sales recovery.

The math reveals the constraint severity. When rates temporarily dipped to around 6% in September 2024, the resulting increase in mortgage applications and home sales stayed minimal per Fannie Mae analysis. This suggests rates near 6% remain insufficient to significantly boost demand or supply when most homeowners hold 3% mortgages.

For investors, this creates rental demand stability and longer tenant retention. Renters who would normally transition to homeownership stay renting because mortgage payments exceed rent by 35% according to market premiums tracked throughout 2024. An apartment owner in Denver benefits from forced tenant retention as would-be buyers choose to renew leases rather than face payment shock from 6.8% mortgages.

Min 2: Wage Growth Outpaces Home Prices For First Time Since 2011

Fannie Mae projected annual home price growth at 3.6% in 2025 as measured by their Home Price Index, compared to 5.8% in 2024. Slowing home price appreciation combined with nominal wage growth staying around 4% means wages finally exceed home price increases for the first time since 2011, gradually improving affordability.

Redfin forecast the median U.S. home sale price will gradually increase throughout 2025, finishing 4% higher than 2024. The projection mirrors trends from late 2024, driven by persistent imbalance between housing supply and demand. But the deceleration from 5.8% to 3.6% annual growth changes affordability trajectory measurably.

An investor tracking housing affordability can time market entry better than those watching only prices or rates. Markets where wage growth exceeds price appreciation by 100 basis points annually see affordability improve 1% per year compounding. After three years, that 3% cumulative improvement unlocks buyer cohorts previously priced out, driving transaction volume higher and supporting both home values and rental fundamentals.

Min 3: Insurance Costs Exploded 61.8% Since 2018

Freddie Mac calculated the average borrower paid an annual homeowners insurance premium of $1,761 as of August 2024, up 13.6% from 2023 and 61.8% higher than 2018. The burden varies dramatically by state, with coastal and wildfire-prone markets seeing exponential increases that price out marginal buyers.

The average borrower's share of income spent on homeowners insurance climbed from 1.5% in 2018 to 1.7% in 2024. Lower-income borrowers face disproportionate impact from increased costs. This created opportunity divergence—markets with stable insurance costs attract buyers priced out of climate-risk zones.

An investor comparing Texas inland markets to Florida coastal properties sees 200 to 400 basis point insurance cost differentials that directly impact debt service coverage ratios and buyer qualification rates. Capital deployed in San Antonio captures similar appreciation and rent growth as Tampa without the insurance cost explosion that suppresses buyer demand and forces seller concessions.

Min 4: New Home Builders Adapted While Resale Market Stayed Frozen

New home sales averaged 682,000 annually in 2024 through October, up from 595,000 between 2015 and 2019 according to industry data. Homebuilders offered incentives like interest rate buydowns and focused on smaller, more affordable homes. The median size of new homes shrank from 2,519 square feet in 2015 to 2,158 square feet in 2024.

The price gap between new and existing homes narrowed dramatically. New homes carried just a 4% premium in 2024 compared to 28% between 2015 and 2019. Builders absorbed margin compression to maintain volume while existing homeowners stayed locked into low-rate mortgages and avoided listing properties.

For investors, this creates arbitrage between new construction risk and resale acquisition. A builder offering 5.5% rate buydowns on new homes competes directly against resale inventory without rate incentives. An investor who buys resale properties at discounts and offers seller financing or assumable loans captures buyer demand without new construction risk or timeline uncertainty.

Min 5: Regional Differences Create Geographic Opportunity Spread

Of 750,000 single-family housing permits issued through October 2024, 20% concentrated in Houston, Dallas, Phoenix, Atlanta, and Charlotte according to Fannie Mae analysis. The Sun Belt continued dominating homebuilding due to favorable land availability and zoning despite those markets facing the worst oversupply conditions.

The concentration creates inverse opportunity. While institutional homebuilders flood Sun Belt markets with supply, Midwest and Northeast metros see minimal new construction yet maintain steady employment and household formation. An investor focused on existing home acquisition in supply-constrained markets avoids new construction competition entirely while capturing buyer demand from residents priced out of overbuilt alternatives.

Kansas City, Louisville, Indianapolis, and similar metros offer combination advantages—stable employment from healthcare and logistics sectors, minimal new housing supply, and housing costs 40 to 50% below coastal alternatives. Investors who acquire single-family rentals or small multifamily properties in these markets generate higher yields and better tenant quality than chasing Sun Belt growth stories facing oversupply headwinds.

The Takeaway

58% of Fannie Mae mortgages carried rates below 4% while rates for new borrowers averaged 6.8% in November 2024, creating a lock-in effect that prevented 1.72 million home sales between 2022 and 2024 per FHFA data. Existing home sales stayed near 30-year lows at 4.25 million forecast for 2025 despite inventory rising 19.1% year-over-year, because the 270 basis point mortgage rate spread between refinancing and current rates kept sellers frozen. Fannie Mae projected wage growth will exceed home price appreciation for the first time since 2011 during 2025, slowly improving affordability as prices decelerate from 5.8% to 3.6% annual growth while wages hold at 4%. Homeowners insurance costs exploded 61.8% since 2018 according to Freddie Mac, adding hidden affordability pressure that varies dramatically by geography and creates opportunity in markets with stable insurance environments. Investors who focus on supply-constrained Midwest markets avoid both new construction competition and climate-risk insurance explosions while capturing rental demand from buyers staying locked out of homeownership, generating superior risk-adjusted returns as the market slowly thaws through 2026.