The Lock-In Effect, Affordability Pressure, and What It Means for the Peninsula Housing Market

National housing headlines are sending mixed signals.

Sales activity has slowed. Transaction volume has declined compared to prior years. Mortgage rates remain elevated relative to the historic lows that defined 2020 and 2021.

And yet prices, particularly in constrained markets, have not meaningfully fallen.

How can both be true?

The answer lies in three structural forces shaping today’s market: affordability pressure, the lock-in effect, and the K-shaped economy.

Let’s look at what that means locally.

Affordability Is Tighter Than the Headlines Suggest

On paper, price-to-income ratios may not look dramatically worse than prior cycles.

But monthly payment math tells a different story.

Higher rates combined with higher home prices have pushed monthly carrying costs up significantly compared to the mid-2000s. Even when income growth appears to keep pace with price growth, the reality for buyers is defined by monthly payment, not headline ratios.

When you add in increases in property taxes, insurance premiums, and overall cost of living, the true cost of ownership has climbed meaningfully.

The result is a buyer pool that is more analytical, more payment-focused, and more cautious.

Affordability is not theoretical. It is mathematical.

The Lock-In Effect Is Freezing Inventory

One of the most important forces shaping today’s housing market is the lock-in effect.

A large majority of homeowners currently carry mortgage rates below 6%, and many locked in rates in the 3% to 4% range during the pandemic years.

For those homeowners, selling means replacing a historically low mortgage with one that is materially more expensive.

Unless there is a major life event, many choose to stay put.

The result is structurally low inventory.

Even as transaction volume slows, supply remains constrained. And when supply is constrained, prices do not collapse. They stabilize or appreciate gradually, even in a slower sales environment.

On the Peninsula, this dynamic is especially visible.

Limited listings continue to create competition for well-prepared homes. Buyers may be more selective, but when something aligns with their criteria and budget, they act.

The K-Shaped Economy Is Creating Two Markets

We are operating in what economists refer to as a K-shaped economy.

Higher-income households continue to accumulate wealth and drive a disproportionate share of spending. At the same time, many middle and lower-income households face tighter savings, higher debt burdens, and more difficulty qualifying.

In housing, this creates two parallel markets.

At the higher end, demand remains resilient. Buyers have liquidity, strong incomes, and flexibility. Competition persists in desirable neighborhoods and school districts.

In entry and mid-level segments, affordability barriers limit who can participate. Qualification is tighter. Down payment accumulation takes longer. Movement slows.

The Peninsula reflects this split clearly.

It is not one uniform market.

It is segmented.

So What Does This Mean for You?

If you are a seller, you are operating in a supply-constrained environment. But buyers are payment-sensitive. Strategic pricing and thoughtful positioning are critical.

If you are a buyer, inventory is limited but opportunity exists. Preparation matters. Strong underwriting, clarity on payment comfort, and realistic expectations create leverage.

If you are a homeowner with a low rate, that mortgage is an asset. It is not just a debt obligation. It is financial positioning.

The bigger picture is this:

We are not in a collapse.
We are not in a frenzy.
We are in a structurally constrained market shaped by rates, demographics, and supply.

That requires strategy.

The Peninsula market rewards preparation. It rewards sellers who understand pricing psychology. It rewards buyers who know their numbers before they compete. And it rewards families who make long-term decisions based on clarity rather than headlines.

If you are evaluating a move this year, or simply trying to understand where you stand within today’s landscape, I am always happy to walk through the math and the strategy with you.

Because in markets like this, clarity is leverage.