The Lock-In Effect: Why Housing Market Momentum is Picking Up

[Luis Fajardo]

If you’ve been following the housing market, you’ve probably noticed some big changes happening. After months of stagnation, we’re finally seeing more homeowners list their properties, signaling a shift in the long-standing “lock-in effect.” At Funded Capital, we see this as a sign that the market is regaining momentum, and borrowers who position themselves well could benefit significantly.

What Is the Lock-In Effect, and Why Should Borrowers Care?

The lock-in effect occurs when homeowners hesitate to sell because they have a much lower mortgage rate than what’s currently available. With 30-year mortgage rates still hovering just below 7%, many homeowners have been reluctant to sell, keeping inventory tight and limiting options for buyers and investors.

But now, we’re seeing that hesitation start to fade. In January, new home listings increased by 10.8% compared to last year, making it the busiest January since 2021. The overall housing inventory also jumped by 24.6% year-over-year, marking the 15th straight month of growth. For borrowers, this means more choices and potential opportunities to buy under more favorable conditions.

Why the Market is Becoming More Favorable for Borrowers

At Funded Capital, we see firsthand how these shifts impact financing strategies. Here’s why we believe we’re heading in a more bullish direction:

• More Listings, More Lending Opportunities: With a rising supply of homes, competition among sellers is increasing. This means buyers can secure properties at better prices, and we have more opportunities to structure competitive financing solutions.
• Homes Staying on Market Longer Creates Leverage for Buyers: The average home is now sitting for 73 days, the longest since 2020. This gives borrowers more time to negotiate better purchase prices, secure seller concessions, and obtain favorable financing terms.
• Sellers are Willing to Make Deals: In January, 15.6% of home sellers reduced their asking prices, up from 14.5% last year. This suggests that buyers now have an advantage, particularly in markets where inventory growth is highest.
• Regional Shifts Indicate a Stronger Market in Key Areas: Not all markets are responding the same way. Cities like Denver (+54.8%), Las Vegas (+49.4%), and Tucson (+45%) have seen significant inventory increases, signaling more opportunities for buyers and investors in these high-growth areas.

Market Growth is Strengthening in Key Regions

The West is leading the charge in new listings, with a 21.7% increase year-over-year, followed by the Midwest (10.7%), the South (10.6%), and the Northeast (4.5%). Additionally, demographic shifts are fueling the market—Millennials entering their prime homebuying years and Baby Boomers downsizing are adding more movement to housing activity, unlocking new lending opportunities.

Meanwhile, price stabilization is taking shape. While the national median list price slightly declined to $400,500, the price per square foot rose 1.2%. This signals that underlying home values remain strong, and once interest rates ease, market activity will likely accelerate even further.

Looking Ahead: Why Now is a Great Time to Secure Financing

Market analysts predict a 1.5% increase in home sales in 2025. If the Federal Reserve makes expected rate cuts later this year, we could see an even stronger rebound in both homebuying and refinancing demand. That means those who act now—before rates drop further—could secure favorable terms while inventory remains high and sellers remain flexible.

For borrowers, now is the time to prepare. Whether you’re an investor looking for fix-and-flip financing, a homebuyer considering a purchase loan, or a property owner thinking about refinancing, staying informed and having the right lending strategy will be crucial.