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May 1st, 2025 at 10:29 am

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Southern California’s real estate market has long been known for its competitive nature, sky-high prices, and fast-paced sales cycles. But in 2025, a new force is quietly reshaping the market: the lock-in effect.

This trend, driven by homeowners holding onto ultra-low mortgage rates from 2020–2021, is tightening inventory across the region and creating a ripple effect that’s being felt from San Diego to Santa Barbara.

If you’re planning to buy or sell a home this year, understanding this economic shift can help you make more informed, strategic decisions.

What Is the Lock-In Effect?

The lock-in effect occurs when homeowners choose not to sell their homes because they don’t want to give up a historically low mortgage rate for a higher one. During the pandemic housing boom, mortgage rates fell below 3%. Many homeowners in Southern California secured long-term loans with very low monthly payments.

Fast forward to 2025, and interest rates are hovering near 7%. That means a homeowner with a $1M mortgage at 2.8% would pay roughly $4,100/month, whereas the same loan at 7% would now cost over $6,650/month. For many homeowners, that’s enough to put any plans to move on indefinite hold.

How It’s Impacting Housing Inventory in Southern California

The lock-in effect is contributing to one of the biggest issues facing the SoCal housing market: low inventory. Even in a busy place like Southern California, homeowners are deciding to stay put. This is reducing the number of homes for new buyers.

Here’s how the trend is playing out:

1. Reduced Turnover Across All Price Points

Whether it’s a starter condo in Long Beach or a luxury home in Newport Beach, inventory is down. Sellers are hesitant to list unless they’re relocating out of state or experiencing a major life change.

2. Fewer Move-Up Buyers

Homeowners who might have upgraded to a larger or more desirable property are instead choosing to renovate or add onto their current home, further stalling inventory growth in mid-to-high price ranges.

3. Hyper-Competitive Conditions for Buyers

With fewer homes hitting the market, competition is fierce. Well-priced, move-in-ready homes often receive multiple offers within days, pushing prices higher and reducing negotiation room for buyers.

4. Strain on First-Time Buyers

First-time buyers are struggling the most. They’re facing both higher home prices due to competition and higher monthly payments due to rising rates, all while inventory remains limited.

5. Concentration of Demand in Turnover-Friendly Areas

In areas where owners need to move, homes sell quickly and for more than the asking price. This often happens near military bases, universities, or industries that frequently relocate. These pockets stand out as rare opportunities in a tight market.

How Sellers Can Still Win in 2025

Even with fewer listings, now is a great time to sell in Southern California. This is true if you are downsizing, moving out of state, or no longer need a mortgage.

For sellers, having a good listing agent is important. They help set the right price, market well, and attract buyers quickly.

Tips for Buyers Navigating the Lock-In Market

Buyers should be aware of the environment and adjust their strategy:

What’s Next for the SoCal Real Estate Market?

Unless mortgage rates drop significantly, the lock-in effect is likely to persist through 2025 and beyond. We may continue to see a shortage of inventory. This is especially true in popular areas like Orange County, West LA, and coastal San Diego.

However, changing life circumstances—like retirement, divorce, or job relocation—will still drive home sales. New construction and build-to-rent developments may provide new options for buyers who cannot afford traditional resale markets.

Whether you’re planning to buy, sell, or simply stay informed, it’s crucial to understand how today’s unique conditions are shaping the real estate market in Southern California. The lock-in effect is just one piece of a larger puzzle—but it’s a powerful one that every buyer and seller should be aware of.

Ready to Make Your Move in Southern California?

Whether you’re navigating the market as a buyer or considering selling your home, our experienced agents are here to guide you every step of the way. With deep local expertise and the backing of one of the most trusted names in real estate, we’ll help you make informed decisions—no matter the market conditions.

Connect with a local expert today to start your real estate journey with confidence.

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