Homeowners feel trapped by their lower mortgage rate, survey finds
Many homeowners who want to sell their homes are opting to forgo those plans this spring because of mortgage rate concerns.
Approximately 82% of potential move-up buyers said they felt trapped by their current low mortgage rate on their home, a Realtor.com poll of over 1,200 potential sellers in February found. More than half planned to wait until rates fell further before selling, while a quarter planned to sell soon for personal reasons, despite feeling locked in.
The reluctance of many homeowners to sell this season is exacerbating the inventory shortage of homes for sale, which is propping up home prices as more buyers come into the spring market.
“The uncertainty regarding the pandemic is past, but today's homeowners are hesitant because the financial landscape has shifted,” Danielle Hale, chief economist at Realtor.com, told Yahoo Finance. “If mortgage rates remain elevated, it may hamper the recovery in the number of homes for sale. On the flip side, a drop in mortgage rates could improve not only buyer demand, but also housing supply."
Younger generations felt rate trapped the most
While the lock-in effect spanned generations, younger generations felt the most stuck in their home and current mortgage, with 97% of Gen Zers, 87% of millennials, and 87% of Gen Xers citing this feeling.
However, a third of Gen X owners planned to move regardless of feeling rate-trapped due to personal reasons, the largest share of any generation. The report noted that Gen Xers likely have lower outstanding balances on their mortgages, which provided some peace of mind about moving.
Baby boomers were the most likely to not feel rate-trapped, likely because they had far less debt on their mortgage than the other generations.
Despite concerns over mortgage rates, most sellers felt they were in a good position to purchase.
At least 85% of sellers said they were content with the amount of equity they had in their home, Realtor.com showed. Three-quarters of sellers said they had $100,000 of equity, while 42% estimated they had more than $200,0000 of equity.
The main problem holding them at bay were those higher rates.
“Over 90% of people that have a mortgage, their interest rates are below 5.50% and at least 70% probably a little more than that are below 4.50%,” Doug Duncan, chief economist at Fannie Mae recently told Yahoo Finance. “They're just not going to want to give those mortgages up anytime soon.”
That’s evident in the listing inventory.
Overall, there were 414,000 single family homes on the market nationwide, according to Altos Research. While that’s 50% more active inventory than last year, it remains 50% less than in 2019.
Those who plan to sell in spite of their rate concerns know they have the upper hand.
More than a quarter of sellers said they expected a bidding war, 31% expected to get more than the asking price, and 37% anticipated to have an offer within a week, according to Realtor.com.
More than a third expect buyers will waive contingencies and a third expect an all-cash offer.
“The demand is there,” Sean Dycus, real estate agent at Mainstreet Properties, told Yahoo Finance. “We just have to navigate the new rate conditions.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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