Are You Rate-Locked
In Your Own Home?
The biggest challenge the housing market faces is how few homes there are for sale. Mark Fleming, Chief Economist at First American, explains the root causes of today’s low supply:
Two dynamics are keeping existing-home inventory historically low – rate-locked existing homeowners and the fear of not finding something to buy.
Mark Fleming, Chief Economist at First American
Let’s break down these two big issues in today’s housing market.
Rate-Locked Homeowners
According to the Federal Housing Finance Agency (FHFA), the average interest rate for current homeowners with mortgages is less than 4% (see graph below):
To repeat, when you already have a home with a low-interest rate and you decide to sell you’ve become a buyer facing interest rates of 6% plus. As a result, many homeowners are opting to stay put instead of moving to another home with a higher borrowing cost. This is a situation known as being rate locked.
When so many homeowners are rate locked and reluctant to sell, it’s a challenge for a housing market that needs more inventory. However, experts project mortgage rates will gradually fall this year, and that could mean more people will be willing to move as that happens.
The Fear of Not Finding Something to Buy
The other factor holding back potential sellers is the fear of not finding another home to buy if they move. Worrying about where they’ll go has left many on the sidelines as they wait for more homes to come to the market. That’s why, if you’re on the fence about selling, it’s important to consider all your options. That includes newly built homes, especially right now when builders are offering concessions like mortgage rate buydowns.
What Does This Mean for You?
These two issues are keeping the supply of homes for sale lower than pre-pandemic levels. But if you want to sell your house, today’s market is a sweet spot that can work to your advantage.
Be sure to work with a local real estate professional to explore the options you have right now, which could include leveraging your current home equity. According to ATTOM:
“. . . 48 percent of mortgaged residential properties in the United States were considered equity-rich in the fourth quarter, meaning that the combined estimated amount of loan balances secured by those properties was no more than 50 percent of their estimated market values.”
ATTOM Property and Real Estate Data
This could make a major difference when you move. Work with a local real estate expert to learn how putting your equity to work can keep the cost of your next home down.
Bottom Line
Homeowners who are rate-locked and worried about not finding something to buy are keeping housing inventory low all over the US. But as mortgage rates start to drop this year and homeowners look into all their choices, we should see more homes hit the market.