Higher rates may prompt homeowners to stay put, but how will that impact inventory?
Approximately half of American homeowners who currently have a mortgage enjoy a rate of less than 4%. Given that interest rates are now closer to 5%, experts say this could prompt many to stay put, possibly resulting in more pressure on the already-low inventory of homes for sale.
The thinking is that homeowners who’re locked into their current low mortgage rate are incentivized to stay where they are. Indeed, some are currently enjoying ultra-low rates of less than 3%, so to move now would mean a big bump in their monthly outgoings.
Redfin said this “lock-in effect” may lead to a decline in home listings in the coming months.
The 30-year fixed-rate mortgage last week averaged 5%, the highest it has been in more than a decade, Freddie Mac said. Since the start of the year, rates have risen by 1.8 percentage points, adding around $400 a month to the average mortgage payment for a median-priced home, the National Association of Realtors said recently.
Redfin Deputy Chief Economist Taylor Marr said the higher mortgage rates already appear to be putting a damper on home listings. However, at the same time the higher rates are also reducing demand, he said.
“That slowdown in demand may cause homes to stay on the market longer, in effect giving buyers more options to choose from,” Marr added. “Overall, that could mean housing inventory actually gets better, not worse.”
Indeed, signs of a slowdown in the market have already appeared. For instance, it was recently reported that more home sellers are reducing their asking prices. The percentage of sellers doing this is still very low, but the pace is increasing. Moreover, mortgage purchase applications fell 6% compared to one year ago during the week ending April 8. Declines have also been seen in indexes that reflect home touring activity.
Even so, Heather Mahmood-Corley, a Redfin agent based in Phoenix, said that while the increased rates may cause a shock to the market, people will be driven by other factors.
“People still have to move,” she said. “Some sellers will have to adjust their expectations and understand they may not be able to afford the same house they could have two years ago.”The post Higher rates may prompt homeowners to stay put, but how will that impact inventory? appeared first on RealtyBizNews: Real Estate Marketing & Beyond.