That's when rising mortgage rates make homeowners unwilling to sell, because they don't want to trade an old, low-rate mortgage for a new one charging more.
According to a report by HSH.com, a mortgage and housing company, the lock-in effect is becoming a hot topic among real estate experts who fear its impact on the economy.
Homeowners who succumb to the effect are reluctant to move for a better job, new school or to get more space for a growing family. That would reduce demand, dampening gains in home values. It would mean less business for real estate agents, builders and sellers of home furnishings and appliances ... Well, you get the picture.
The problem is the flip side of government efforts to stimulate the economy by driving mortgage rates down from more than 6% to below 4%. Since April 2009, about 28 million homeowners have refinanced to get lower mortgage rates, according to government figures. Millions more bought homes with low-rate mortgages. Many of the 30-year loans charged as little as 3.5%, and ones with shorter terms charged even less.
HSH noted that a recent study by the Institute for Housing Studies at DePaul University in Chicago found that a 10% increase in households bound by the lock-in effect would reduce housing turnover by 29%, a huge drop in sales.