It’s easy to understand how high mortgage rates are preventing people from buying homes. But can existing low interest rates stop people from selling? Apparently, they can.
There is a near record low inventory of homes on the market as the spring buying season gets underway and a survey by Realtor.com found that low interest rates are a primary reason. The survey shows that 82% of current homeowners who would like to sell feel “trapped” in their homes because they don’t want to give up their low mortgage rate.
As a result, more than half of seller-buyers – 56% – who are planning to sell in the next 12 months said they are waiting for rates to come down.
Mortgage rates were below 4% over most of the last decade when millions of homes were bought and sold. They fell below 3% during the pandemic. Now, the average 30-year fixed-rate mortgage is around 6.5%, making a huge difference in the monthly payment.
"One positive aspect that came out of the pandemic was historically low mortgage rates – and many people took advantage of this opportunity to buy their first home, upgrade to a more expensive home or refinance the home they were in," said Realtor.com Chief Economist Danielle Hale. "Unfortunately, this comes with a bit of a catch-22, as homeowners who locked in a 30-year fixed rate in the 2% to 3% range don't necessarily want to give that up in exchange for a rate in the 6% to 7% range."
Homeowners are gaining equity
On a positive note, most current homeowners who would like to sell are expecting a hefty profit when they finally do sell. Eighty-five percent of potential sellers said they are happy with the amount of equity they have in their homes. Specifically, 74% estimate that they have more than $100,000 in home equity and 20% estimate that number to be more than $300,000.
Home prices have fallen in the most expensive markets but elsewhere, they have actually gone up. In fact, on a nationwide basis, home prices rose in February for the first time in seven months.
The S&P CoreLogic Case-Shiller U.S. National Home Price index rose 0.2% compared to January, ending seven consecutive months of price declines. A report from the Federal Housing Finance Agency (FHFA) showed prices increased even more – 0.5%.