80% of millennials have a mortgage rate under 5%—only 52% of Gen Z borrowers can say the same

“Due to the ongoing rate lock effect, the housing market is currently plagued by a lean inventory of existing homes for sale. While homeowners moving to another home does not add to the net supply of homes for sale, churn is essential for keeping people moving along through their life stages. An individual’s demand for housing keeps evolving as young families move into starter homes and then transition up into larger homes as their families grow. Gen Xers are generally several years away from retirement and have already transitioned from their starter homes to accommodate their growing family; therefore, they are less likely to move from their current homes. The added benefit of low rates may mean that they will remain rate-locked for longer. Millennials, on the other hand—particularly the younger Millennials—are more prone to changing jobs and transitioning into bigger homes as families grow, making them more likely to move regardless of their current low rates. According to the American Community Survey, in 2022, when the average mortgage rate was 5.3%, 12% of Millennial homeowners still moved to a new place, while only 3.8% of Baby Boomers and 5.5% of Gen Xers moved. This suggests that while Baby Boomers and Gen Xers will likely stay put and retain their low mortgage rates, Millennials will likely unlock their locked rate and transition up.”

“As mortgage rates stay higher for longer, refinance activity continues to be challenging. Looking at the average interest rate by generation, Gen Z is at the forefront regarding refinance potential with 13% of Gen Z having rates above 7%. However, Gen Z is a fraction of total mortgage borrowers, and the number of borrowers with a rate over 7% is slim among Gen Zers. The rate dispersion suggests that there is refinance potential among other generations, notably Gen Xers and Millennials. Millennials are the largest population cohort, and therefore, despite the low homeownership rate compared to Baby Boomers and Gen Xers, the sheer number of Millennial borrowers with rates >7% is high. But the refinance potential is mainly concentrated among Gen Xers, with almost 700,000 Gen X borrowers holding mortgage rates >7%. All generations combined, over two million mortgage borrowers have rates above 7%, with over 1.2 million borrowers from the Millennial and Gen X cohorts. If rates fall below 6.5%, an additional 1.4 million borrowers, i.e., a total of over 3.4 million, will have rates above 6.5%, primarily concentrated within the Gen X generation. These borrowers are more likely to refinance their mortgage [if rates fall].”