With the 30-year hovering just under 7%, most homeowners in the U.S. have a built-in speed bump between them and the housing market. More than 9 out of 10 (91.8%) of those with a mortgage are locked into rates below 6%—down just a tick from the record high of 92.9% reached in mid-2022.
That’s according to a new report from Redfin, which also shows about four in five homeowners with rates under 5%. Almost one quarter have rates below 3%.
Naturally, with so many homeowners staying put in hopes of a rate decline, inventory remains near record lows, with more severe shortages at affordable price points.
Another reason sellers are staying is because many bought their homes recently. In fact, a record 60% of today’s mortgage holders have lived in their current homes for four years or less.
MOST HOMEOWNERS WITH MORTGAGES ARE LOCKED INTO RATES BELOW 6%
Redfin’s report details their analysis of Federal Housing Finance Agency (FHFA) data as of the final quarter of 2022—the most recent quarter for which this data is available. The data pertains only to households with outstanding mortgages.
Take a moment to let those numbers sink in:
- 91.8% of homeowners with a mortgage are locked into a rate under 6%.
- 82.4% have rates below 5%—down from a peak of 85.7% reached in Q1 2022.
- 62% have rates below 4%—down from a record high of 65.3% reached in Q1 2022.
- 23.5% have rates below 3%—down from the record high of 24.6%, reached in Q1 2022.
So, many of those interested in selling are looking at today’s mortgage rates, which just crept closer to 7%, and thinking, “Nah, maybe I’ll wait a bit.”
That said, some still need to sell, primarily due to life changes requiring a move—a new job, a growing family, moving to care for a family member, etc.
High mortgage rates are a double whammy because they’re discouraging both buyers and sellers–and they’re discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy. The lock-in effect is unlikely to go away in the near future. Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further. Some of them simply don’t want to take on a 6%-plus mortgage rate and some can’t afford to. Taylor Marr - Redfin Deputy Chief Economist
THE ONLY PEOPLE SELLING ARE THE ONES WHO NEED TO MOVE
With so many would-be sellers disincentivized from listing their homes, the only ones jumping into the market with both feet are those with an urgent need to move due to one of the following motivators:
- Marriage
- Growing family
- Divorce
- Downsizing
- Diploma (graduation)
- New job offer requiring a move
According to an early June Redfin survey conducted by Qualtrics, a little more than one-quarter (27%) of homeowners with lower rates who are considering selling their home in the next 12 months would feel more urgency if mortgage rates fell to 5% or lower.
About half would feel more motivated by rates falling to 4% or below. And over three-quarters would jump on board if rates plummeted to 3% or lower—which is unlikely to happen in the next 12 months (let alone six).
For some homeowners, the surge in home prices during the pandemic means they now have enough equity in their homes to offset the additional cost of taking on a higher mortgage rate.
Posted by:
Sarah Lentz
June 15, 2023
