If you’ve been wondering why housing inventory hasn’t returned to pre-pandemic levels despite prices being high enough to theoretically motivate sellers, the answer has a name: the rate lock-in effect. It’s the single most powerful force constraining housing supply in Central Oregon and across the United States, and it’s not going away anytime soon.
The Numbers Tell the Story
As of early 2026, approximately 82% of outstanding mortgages in the United States carry an interest rate below 5%. About 60% are below 4%. And roughly 24% are below 3%. These are rates that most current homeowners locked in during the 2020-2021 refinancing boom or through purchases made when rates were historically low.
Now consider what happens when one of those homeowners considers selling. A family with a $400,000 mortgage at 3.25% pays about $1,741 per month in principal and interest. If they sell and buy a comparable home at today’s rate of 6.31%, that same $400,000 loan costs $2,483 per month, a $742 monthly increase for the exact same borrowing amount. On a larger loan, the gap is even wider.
That math is why millions of homeowners who might otherwise sell, people who want a bigger house, a different neighborhood, or to relocate for work, are choosing to stay put. The financial penalty for moving is simply too steep.
How This Plays Out in Central Oregon
Central Oregon felt the refinancing boom of 2020-2021 acutely. Many homeowners in Bend, Redmond, and Sisters refinanced or purchased during that window. Our analysis of local mortgage data suggests that roughly 75-80% of Deschutes County homeowners with mortgages have rates below 5%.
The practical impact is visible in the listing data. Despite strong population growth and demand, new listings in Deschutes County ran about 15% below the 2017-2019 average throughout 2024 and 2025. The gap has narrowed slightly in early 2026, but it remains significant.
In a normal market (one without the rate lock effect), the current level of buyer demand and price appreciation would motivate more homeowners to sell, capture their equity gains, and either upgrade or downsize. Instead, many are choosing to renovate, add space, or simply stay in homes that no longer perfectly fit their needs. The golden handcuffs of a sub-4% mortgage are a powerful motivator to stay.
The Velocity Problem
The rate lock effect doesn’t just reduce total inventory. It reduces market velocity, the rate at which homes turn over. Lower velocity means:
- Fewer “move-up” listings as families with growing children can’t justify the rate penalty of a bigger home
- Fewer downsizer listings as empty nesters stay in larger homes rather than take a rate hit
- Fewer relocations as workers negotiate remote arrangements rather than sell and move
- More remodeling activity as homeowners invest in their current properties instead of trading
Each home that doesn’t turn over removes both a listing and a buyer from the market (since the staying homeowner doesn’t need to buy a replacement home). But the net effect is still constrained supply, because potential first-time buyers and relocating workers have no existing home to not-list. They need inventory that the locked-in homeowners aren’t providing.
When Does the Lock Ease
There’s no switch that flips the rate lock off. It will ease gradually over years as:
Life events override financial optimization. People get divorced, take new jobs, have children, lose jobs, retire, and inherit. Life doesn’t wait for interest rates. Each year, some percentage of locked-in homeowners sell regardless of the rate penalty. Based on historical turnover data, we estimate this forced-move percentage at roughly 3-4% per year.
Rates decline. Every 50-basis-point drop in mortgage rates narrows the gap that locked-in homeowners face and brings some percentage of voluntary movers back into the market. If rates reach the low 5% range, the rate penalty for moving would shrink enough to unlock meaningful supply. Our analysis suggests that rates below 5.5% would release approximately 10-15% more listings in Deschutes County.
Equity accumulation changes the math. As homeowners build equity through appreciation and principal paydown, some will have enough to make a large down payment on their next home, offsetting the higher rate with a smaller loan amount. This is already happening at the upper end of the market.
Time passes. Every year, some low-rate mortgages are paid off through sale, refinance (at whatever current rates are), or maturity. The pool of sub-5% mortgages will shrink naturally, but the process will take a decade or more to fully work through the system.
What Buyers Should Understand
The rate lock effect means the supply-demand imbalance is structural, not cyclical. Wishing for a flood of inventory isn’t a strategy. Instead, Central Oregon buyers should:
- Accept that inventory will remain below historical norms for the foreseeable future
- Focus on neighborhoods where new construction is adding supply
- Be prepared to act when good listings appear, because the pool of active listings is smaller than it should be
- Consider new construction as a way to sidestep the constrained resale market
The rate lock effect is real, it’s significant, and it’s going to shape Central Oregon’s housing market for years to come. Understanding it won’t change the fundamentals, but it will help you set realistic expectations and make better decisions.
Explore current available listings or read more analysis in our housing market section.