While falling mortgage rates will improve affordability, the "lock-in effect" for existing homeowners with ultra-low rates will persist. This will suppress the typical sales volume rebound, leading to an anemic 3% growth in purchase volumes, a historically tepid response to improved affordability conditions.

The historically low number of home sales isn't just about buyer affordability. A major factor is seller reluctance; existing homeowners are "locked in" by their low-rate mortgages and find it financially unattractive to sell and buy a new property at current higher rates.

While lower mortgage rates typically boost buyer demand, they also reduce the 'lock-in effect' for existing homeowners. This brings more supply to the market, which will likely offset the increased demand and keep home price growth minimal and 'range-bound'.

The administrative task of collecting mortgage payments is a separate component called a Mortgage Servicing Right (MSR). These MSRs are actively bought and sold, leading servicing to be consolidated among large, specialized firms. This is why the company you send your payment to often changes.

Despite the Bank of England's rate-cutting cycle, UK consumer spending isn't increasing as expected. This is because many households are rolling off older, low-rate 2- and 5-year fixed mortgages onto much higher rates, causing their actual debt servicing costs to jump.

The US housing market is frozen not by insolvency but because homeowners are locked into low mortgage rates. With transactions at crisis-era lows but driven by non-discretionary events like death and divorce, pent-up demand creates a "coiled spring" scenario for when rates ease.

Fed rate cuts primarily lower short-term yields. If long-term yields remain high or rise, this steepens the curve. Because mortgage rates track these longer yields, they can actually increase, creating a headwind for housing affordability despite an easing monetary policy.

The bond market is a better indicator for mortgage rates than the Fed. The current spread between 5-year and 10-year Treasury notes implies that investors expect the 5-year note's yield to be 100 basis points higher in five years than it is today. Since mortgage rates are closely tied to these yields, this suggests a potential for higher, not lower, mortgage rates in the medium term.

The gap between existing mortgage rates (under 4.25%) and new rates (over 6.25%) is over 200 basis points. This spread, which disincentivizes homeowners from selling, has persisted for three consecutive years. Historically, the gap only exceeded 100 basis points for a total of eight quarters over the past four decades, making the current situation a major anomaly.