The sharp rise in mortgage rates in 2022 has hampered housing affordability and led to fewer home sales. Aside from those obvious bits of fallout, the run-up in rates has also delivered a surprise: Many homeowners are choosing not to sell because they don’t want to give up the super-low rates they locked in during 2020 and 2021.

Give up a rock-bottom rate? No thanks

In the depths of the pandemic, many homeowners refinanced into mortgages with rates of 3 percent or less. Now that rates are near 7 percent, many are deciding to simply stay put.

“Sellers are on strike,” says Mark Fleming, chief economist at title insurer First American.

Reflecting that storyline, the number of existing homes for sale in the U.S. dwindled to 1.11 million in September, down from 1.14 million in August and 1.16 million in July, according to the National Association of Realtors (NAR).

Homeowners choose not to put their homes on the market for a variety of reasons. Some are worried about finding another home at an agreeable price, or they’re concerned about the economic outlook. Fannie Mae’s Home Purchase Sentiment Index fell in September, its seventh consecutive monthly decline, as soaring mortgage rates crimp affordability.

Giving up a record-low rate doesn’t appeal to many homeowners, either. Based on a 30-year repayment schedule, a borrower who took out a $400,000 loan last year at 3 percent is paying $1,686 a month. Borrowing the same amount at a 7 percent rate pushes the payment to $2,661 — ​​a jump of $975 a month, or 58 percent.

That has led to what Robert Dietz, chief economist of the National Association of Home Builders, calls the “mortgage lock-in effect.”

“If you’ve got a mortgage rate of 2 or 3 percent, you’re not likely to give up that note,” says Dietz.

Some 85 percent of U.S. homeowners with mortgages have an interest rate of less than 5 percent, according to Redfin, which found that in Atlanta, Chicago, Los Angeles and Washington, D.C., homeowners with a rate below 3.5 percent were 7.6 percent less likely to put their homes up for sale in August than those with a rate above 3.5 percent.

The lack of homes for sale helps to prop up prices, but this new mindset is playing into a sharp slowdown in activity. Existing-home sales fell again in September, the eighth month in a row of declining sales volumes, according to NAR.

While home values have cooled in recent months, they still remain near record highs. In theory, an equity-rich homeowner could sell and apply the gains to a down payment on a new place, thereby reducing the monthly mortgage payment.

All that equity isn’t doing much to boost the pace of home sales, however, which have been dropping steadily during 2022. While there are homeowners who need to sell because of job changes, divorce, death or other circumstances, for now, those who don’t are opting not to.

“With rates sitting above 6.5 percent for three weeks and no indication they’ll come down before the end of the year, people are only buying and selling homes if they need to,” says Chen Zhao, economist at Redfin.

Rates still ‘along for the ride’

The average rate on 30-year mortgages rose to 6.92 percent last week, according to Bankrate’s national survey of large lenders, the highest reading since 2006. A year ago, the benchmark 30-year fixed-rate mortgage was 3.22 percent.

The steep move has mostly been driven by the Federal Reserve. At the beginning of the pandemic, the Fed slashed rates to zero to stimulate the economy, and mortgage rates responded by plunging to record lows.

The next phase of the economy, however, saw the highest levels of inflation in four decades. The Fed responded by waging war, and its third consecutive rate hike of three-quarters of a percentage point in September created upward pressure on mortgage rates.

The Fed doesn’t directly control fixed mortgage rates; the most relevant metric is the 10-year Treasury yield, which also has moved higher.

With inflation still high and the Fed poised to keep boosting rates, higher mortgage rates seem likely.

“Inflation remains hot so interest rates will need to go higher,” says Greg McBride, Bankrate’s chief financial analyst. “With the 10-year Treasury yield moving over 4 percent, mortgage rates are along for the ride and moving to 20-year highs.”

Many homeowners are coping with rising rates in part by staying in their homes. Others are swallowing higher rates and tapping home equity for renovations and other uses. This strategy allows you to keep the rock-bottom rate on your primary mortgage. You’ll pay a higher interest rate with a home equity loan or line of credit, but for now, it might make more sense to go this route and leave your 3 percent first mortgage rate untouched.