If you’re one of the lucky homeowners who was able to lock into dirt-cheap mortgage rates, well done. You’re one of the winners in today’s peculiar and lopsided housing markets.
This isn’t the first time we’re talking about it and will not be the last. Nevertheless, high interest rates have had an unexpected impact on the country’s housing market. Usually, when mortgage interest goes up, home prices go down. Not this time. Home prices keep pushing up because of the lack of inventory to choose from.
It’s almost getting monotonous to keep saying it, but the fact is there was a “lock-in” effect of ultracheap mortgages secured when interest rates were low, which trapped owners in their homes. It was an unforeseen consequence of years of easy money. Are you listening, Federal Reserve?
Two-thirds of outstanding mortgages in this country have a rate of below 4%, according to Morgan Stanley. The current typical rate is 7%, so homeowners who may want to move will be paying a lot more in their monthly mortgage payments today. Hence, frozen.
The byproduct of lower home sales is the economic consequence related to purchasing a home. People normally splurge to fix up houses before putting them on the market or renovate them after they move in. This important economic category of work has dried up not only for home contractors but also for professionals handling the logistics of transactions like attorneys, appraisers and real estate and mortgage brokers.
The only light on the horizon is the Federal Reserve, which left the door open to lower rates at their September meeting. Also, they have penciled in four rate cuts by year-end 2025 with the prediction being that rates could fall to 4.1% in a year.
Builders in some parts of the country are building smaller, more affordable new homes to attract buyers looking for a lower price point. As an aside, the U.S. house size exploded by 150% between 1980 and 2018, according to Census Bureau data. In 2022, the median house size hit 2,300 square feet. Everybody likes space but maybe it’s time to reduce the footprint of homes. Do kids really need their own bedroom and playroom?
So that news is good, but what about people who really need to sell and move on? Young people on a career path need to consider where they will live and how much that will cost before interviewing for a higher position that involves relocating. Seniors who want to downsize or move closer to family are also reluctant to sell. Even if they can tap into their existing equity, the assumption is their living expenses will be high wherever they go.
As more owners stay put, the number of homes on the market has fallen. Tight supply is pushing prices higher, shrinking the pool of buyers who can afford a home and leaving buyers who can afford one thinking they are overpaying. The National Association of Realtors reports there is around a five-month supply of inventory available. This availability number should be about 62% for a healthy market. The availability for single-family homes in Manatee County as of the June sales statistic is four months.
Even if you’re feeling lucky with your financing decisions, no one wants to be in a position where they feel frozen in place. You never know what curve life will throw at you, so being frozen isn’t good for anyone.
