Rising Mortgage Interest Rates are Keeping Homeowners from Selling, and It’s Just the Beginning

Over the past few years most pockets of the U.S. housing market have been plagued by a historically low inventory of homes for sale, which has lead to increased competition and driven up prices to record highs. 

The housing market finally appears to be entering a cool-off period, with price appreciate beginning to decelerate. But the number of homes for sale is still low, and two new housing reports suggest that the very measure that is cooling down the housing market might be the same factor keeping inventory from bouncing back.

Nationally home prices have gained 19.2% over the past 12 months (locally 11.9%), a surge that has locked many potential homebuyers out of the market.

Over the past two years two key factors collided to send prices this high. Demand for housing increased amid the early-pandemic low mortgage rates (and in response to buyer needs changing in result to additional time in the home and work from home trends), while the supply of new homes sat at historic lows, creating the perfect recipe for intense competition and higher prices.

But now that relationship is has started to break down, and the calculus is changing.

Homeowners don’t want to leave

Why sell a house with a mortgage that includes a rate between 2.5% to 3.5%, to buy a replacement property with a mortgage rate around 5%? That’s the question the market is currently presenting to potential sellers and thus it should come as no surprise that most don’t want to sell.

The surge in demand for housing over the past two years has been fueled in part by low mortgage rates after the Federal Reserve lowered rates in response to the pandemic. The average 30-year fixed mortgage rate in 2021 was 2.96%, with the metric hitting a record low in January 2021 when mortgages sat at 2.65%.

Buying a home back then meant locking in a record-low mortgage and this it was a no-brainer for many prospective homebuyers, despite rising home prices. But if 2020 and 2021 were the best years to buy a home with a mortgage, 2022 is the polar opposite. 

More than half of current homeowners were able to lock in a fixed rate below 4%. As of April 2022, 30-year fixed mortgages are sitting well above 5%, after the Federal Reserve began raising interest rates to combat inflation. For homeowners who already secured low rates through purchases or refinancing during the pandemic, the thought of putting their home on the market now might not be all that appealing if it means buying a new home that locks them into a high rate.

According to the latest national housing survey by Fannie Mae, 92% of current homeowners, regardless of income level, believe that their home is either somewhat or very affordable.

An unwillingness to move and take on a higher mortgage may be what has already led to a 7% drop in new listings this spring relative to last year. * Though locally inventory was up 6.4% in April while home sales were down 2.5%. Locally demand is decreasing in response to a record-high surge in mortgage rates in the first months of 2022. 

While low mortgage rates previously acted as a buffer that justified a home purchase even when home prices were high. That buffer is now gone, as most current homeowners are enjoying fixed rates far below what they would have to deal with should they decide to move.

No one wants a higher mortgage

Homeowners are holding on to their homes for longer because moving and finding a new home in the current market is too expensive. From a personal finance standpoint, the decision is probably wise. But from a macro perspective on the U.S. housing economy, it’s bad news.

Higher mortgage rates and lower demand for homes is helping to cool the housing market, but increasing inventory is critical. More listings and more homes on the market would have the biggest effect on alleviating competition, giving buyers more negotiating power, and reining in prices.

In a promising sign, new construction starts for homes in the U.S. are growing at a steady rate, but until current homeowners begin to venture back into the market, supply will remain constrained, and prices will likely stay relatively high.

If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please give us a call and we’d be happy to assist you!

The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235

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