March 20, 2023
The biggest challenge the housing market’s facing is the limited number of homes there are for sale. Mark Fleming, Chief Economist at First American, explains the root causes of today’s low supply:
“Two dynamics are keeping existing-home inventory historically low – rate-locked existing homeowners and the fear of not finding something to buy.”
Let’s break down these two big issues in the current housing market.
Rate-Locked Homeowners
According to the Federal Housing Finance Agency (FHFA), the average interest rate for current homeowners with mortgages is less than 4% (see graph below):
But today, the typical mortgage rate offered to buyers is over 6%. As a result, many homeowners are opting to retain their existing mortgages and stay put instead of moving to another home with a higher borrowing cost. This is a situation known as being rate locked.
When so many homeowners are rate locked and reluctant to sell, it’s a challenge for a housing market that needs more inventory. However, experts project mortgage rates will gradually fall this year which could be an incentive for more people to be willing to move as that happens.
The Fear of Not Finding Something To Buy
The other factor discouraging potential sellers is the fear of not finding another home to buy if they move. Worrying about where they’ll go has left many on the sidelines as they wait for more homes to come to the market. That’s why, if you’re on the fence about selling, it’s important to consider all your options. That includes newly built homes, especially right now when builders are offering concessions like mortgage rate buydowns.
What Does This Mean for You?
These two issues are keeping the supply of homes for sale lower than pre-pandemic levels. But if you want to sell your house, today’s market is a sweet spot that can work to your advantage.
Be sure to work with a local real estate professional to explore the options you have right now, which could include leveraging your current home equity. According to ATTOM:
“. . . 48 percent of mortgaged residential properties in the United States were considered equity-rich in the fourth quarter, meaning that the combined estimated amount of loan balances secured by those properties was no more than 50 percent of their estimated market values.”
This could make a major difference when you move. By working with a local real estate expert, you can learn how maximize your financial strength by putting your equity to work and reduciing the cost of your next home..
Bottom Line
Rate-locked homeowners and the fear of not finding something to buy are keeping housing inventory low across the country. But as mortgage rates start to slide this year and homeowners explore all their options, we should expect more homes to come on the market. Feel free to contact us for updated local market information about Chicago’s North Shore, North and Northwest Suburbs, the buying and selling process, or use our complimentary Free Relocation Service for a referral to an area expert in your desired area.
Courtesy of Keeping Current Matters