Although the federal funds rate, which is controlled by the Federal Reserve, is a very powerful force, it is by no means all-powerful.

Exhibit A: The American housing market. Last week, the average interest rate on a 30-year fixed-rate mortgage was about 6.6%, higher than when the Fed started cutting rates in September.

The bigger problem for the housing market, though, is that according to the Federal Housing Finance Agency, roughly 60% of current homeowners with mortgages are enjoying rates below 4% because they bought or refinanced in the pandemic era before rates climbed.

That’s causing the so-called lock-in effect: Homeowners don’t want to give up those cheap rates by selling, which is keeping housing inventory low and prices high.

Hopefully there will be enough eggnog at the NorthWest Illinois Alliance of Realtors holiday party because there definitely aren’t enough houses to go around.

“We currently have over 900 Realtors in our board of Realtors, and with our inventory right around 346 houses and condos available, that makes the competition pretty stiff,” said Realtor Jane Eurek.

She’s been a real estate agent in Rockford, Illinois — a city about 90 miles northwest of Chicago — for 38 years. Homes there are priced attractively, in the low-to-mid 200s. The problem is finding interested sellers.

“There are people that look at that 3% interest rate and aren’t giving it up unless life issues come up — estate sales, divorces, job relocations,” she said.

According to research from the Federal Housing Finance Agency, the lock-in effect reduced home sales nationally by 1.7 million between 2022 and 2024.

“This reduction in supply increased prices by 7%,” said Jonah Coste, an economist with the FHFA.

That’s part of the reason housing prices stayed high when the Fed was raising rates to fight inflation. And unless rates drop dramatically, which feels unlikely, Coste doesn’t see the lock-in effect dissipating.

“We don’t find any evidence that, simply, time is going to do much to alleviate this,” he said.

This new normal — so many homeowners with dramatically cheaper-than-market-rate mortgages — is basically unprecedented, said Daryl Fairweather, chief economist at Redfin.

And that’s widening the gap between the have-nots and have-homes.

“Well, there’s definitely this unfortunate inequality between people who had a home or bought a home during the pandemic and people who weren’t ready to buy a home quite yet,” she said.

Sure, location matters a lot with real estate. But so does timing.