There’s a specter haunting the housing market: the ghost of last year’s mortgage rates. The average 30-year fixed mortgage rate hit 7.10% on Thursday, the highest reading since November of last year. Higher mortgage rates triggered a drop in demand. Meanwhile homeowners who’ve locked in lower mortgage rates are choosing not to sell, tightening available inventory. That means that the market is losing buyers looking to move up and losing sellers looking to move up, so this lock-in effect is constraining both sides of the market.

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“Record-low homeowner vacancy rates have essentially depleted housing inventory and materially tightened supply,” Goldman Sachs analysts wrote in a research note last week. “On net, this implies a muted impact from [new build] completions on the current supply/demand balance of housing and, ultimately, prices.”

Even if every single-family home under construction was completed and listed on the market immediately afterward, Goldman Sachs added, that month’s supply of homes would still be below historic averages, despite the current pipeline of new homes under construction being historically large.

With rates moving closer to their peak of 7.37%, homeowners that locked in lower rates during the Pandemic Housing Boom (or earlier, as rates had been low for years), are choosing not to sell and retain their low rates, often of 3% or less. According to Goldman Sachs, 99% of borrowers have a mortgage rate lower than 6% or the current market rate, and around 28% of those have rates below 3%.

Think about it like this, if you took on a $600,000 mortgage and your rate is 7%, your monthly principal and interest payment would be $3,992. But with the same size loan and a rate of 3%, your monthly payment is slightly over $2,530 a month.