Mortgage rates are within inches of 7% — but less than a tenth of US homeowners have a home loan at that rate.
In fact, only 9% of all existing mortgages in the United States were underwritten with a rate above 6%, according to data from the Federal Housing Finance Agency, and analyzed by Torsten Slok, chief economist of Apollo Global Management.
About a quarter of all mortgages – 23% – have a rate below 3%, Slok added, and 38% of homeowners have a mortgage rate between 3% and 4%.
In other words, the vast majority of US homeowners have low mortgage rates.
Today’s Home Buyer vs Pandemic Era Buyer
Millions of homeowners have taken advantage of ultra-low rates during the pandemic to lower their monthly payments. A recent New York Fed study found that 14 million outstanding mortgages were refinanced during the pandemic years. The typical homeowner who did during that period saw their monthly payment drop by $220, the Fed said.
But today’s homebuyer faces a much more expensive path to homeownership: Mortgage rates have since jumped, and 30-year-olds averaged 6.96% as of July 13, according to Freddie Mac FMCC,
A typical new homeowner will join the ranks of the small group today who have a home loan with an interest rate above 6%.
Low rates leading to shortage of supply
But with millions of homeowners clinging to such low rates, this poses a big problem that has frozen the housing market – that of low supply. This is driven by their reluctance to sell.
If a homeowner sold his house and bought another property, if he needed to take out another mortgage, he would have to take out a home loan at a rate of 7% or even more, depending on what his lender offered him.
“The bottom line is that homeowners across America have no incentive to move out and get a new mortgage,” Slok said.
And “this is one of the main reasons why supply in the housing market continues to be so low,” he added.
The supply of new homes has been severely limited by this imbalance between current rates and the lower rates charged by the majority of owners. New listings — a measure of the number of sellers putting their homes up for sale — were down 27% in early July from a year ago, according to Realtor.com NWSA data,
Realtor.com also noted that 82% of those looking to buy or sell their home feel “locked in” by their low mortgage rate.
As a result, more than half of sellers are waiting for rates to drop before moving, Realtor.com said.
Young owners are slow to sell
Young homeowners, in particular, feel more stuck, given that they have more mortgage debt to pay off than their older counterparts, who have been paying it off for years.
Nearly 80% of millennial homeowners, ages 27-42, planned to delay plans to sell their home for the next 3 years, according to a separate survey of more than 1,400 U.S. homeowners by Harris Poll and Credit Karma, published last week.
“Some homeowners are willing to stay in homes they’ve outgrown or even rent out their current home, and temporarily move into more affordable housing,” the report said.
Some young homeowners even consider living with a spouse or partner from whom they have separated, or postponing the arrival of children, simply to avoid selling their house.
By contrast, baby boomers, ages 59 to 72, feel less rate trap, according to Credit Karma.
One reason is their lack of need for mortgage financing: 43% said they wouldn’t need a mortgage to buy a new home, Credit Karma said. Additionally, 28% said they have enough money to cover the high rates.
The lack of second-hand homes available for sale by owners has led some eager buyers to look to new homes instead. As a result, new home sales jumped 12.2% in May 2023, according to the federal government.
(Realtor.com is operated by News Corp subsidiary Move Inc., and CBS is a unit of Dow Jones, also a News Corp subsidiary.)
2023-07-15 00:06:48
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