The Magic Mortgage Rate Number to Tip the Housing Market

Kiplinger ^ | 08/06/2023 | Erin Bendig

[SeekAndFind]

Homeowners with a mortgage rate above this number are almost twice as likely to sell their home.

A new survey from Zillow found the “mortgage rate tipping point” at which homeowners are likely to sell their homes. According to the survey, homeowners with a mortgage rate above 5% are almost twice as likely to say they plan on selling their home in the next three years than those paying a rate below 5%. 

As the Fed continues to raise the federal funds rate in an attempt to combat inflation, consumers are facing higher commercial interest rates, especially mortgage rates. As of August 2, the average 30-year mortgage rate is 6.81%, compared to 6.78% last week and 5.54% a year ago. This is lower than the long-term average of 7.74%. Additionally, the average interest rate for a 15-year fixed mortgage is 6.11%, up from 6.06% a week ago and up from 4.75% last year.  

Use our tool, in partnership with Bankrate, to compare current mortgage rates available for purchase and refinancing, and check out our mortgage calculator to determine your monthly payment, 

The survey found that about 80% of mortgage holders reported having a rate of less than 5%, 90% reported having a rate of less than 6%, and almost a third reported having a rate of less than 3%. Homeowners who already have a relatively low interest rate are hesitant to sell their home and remortgage at a higher rate. 

This reluctance to sell can have an impact on the housing supply. As homeowners are “locked-in” to their current mortgages, “it results in a shortage of housing options, resale supply, homeowner mobility, and places upward pressure on housing prices” according to Zillow. In fact, a survey from Redfin reported that mortgage payments in March hit a high of $2,563, up from $1,988 the previous year. Zillow also reports that current monthly mortgage payments are more than twice as much as they were in 2020 and 13% higher than a year ago. 

Orphe Divounguy, a senior economist at Zillow Home Loans said in the company's press release: "We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices."  

However, as inflation cools down and more mortgages drop into the 5% range, housing inventory could go up. Zillow found that 23% of homeowners are considering selling their home in the next three years or currently have their home listed for sale. This is much higher than last year, when only 15% of homeowners reported the same. Nearly 40% of homeowners considering selling their home in the next three years have mortgage rates above 5%. 

[BobL]

“As homeowners are “locked-in” to their current mortgages”

Kind of. The problem, of course, is that when the payments increase by 50% (at least) for the same house, at the same price, then the pool of buyers becomes MUCH SMALLER for the sellers...plus the value of their homes has dropped, whether they like it or not, but they will know it, as they learned in 2008.

[TomGuy]

the long-term average of 7.74%

Too many have become too used to cheap money of the last 15 years that they don't realize rates are just now starting to approach their historical median.

[politicket]

Two houses. Two mortgages. One at 2 1/4%. The other at 2 1/8%.

Normally I would make extra payments to get rid of the note earlier.

In this case, extra payments go to treasury securities paying almost 5 1/2%.

My mortgage companies don't like my loans in the least.

[unclebankster]

My mortgage companies don’t like my loans in the least.

****************

I’m sure they don’t, but those were the terms, so too bad.

Have they asked you to refinance at a higher interest rate?😀

[poinq]

The story seems to imply the wrong things. When the study was done, people with mortgages above 5% were twice as likely to say they would move soon. But those are people who already have moved in the past 3 years. 5% will not be the magic number if the fed raises another full point. The magic number will likely go up a full point. But There are people who have to move for some life reason. There are people who don’t need a mortgage. And there are those people who bought a house to rent or flip. They all have different reasons to move.

Right now there is a higher percentage of investment purchasing of homes. People or companies by up homes to rent or AirBnB. This new group of home investors are the reason that there is a shortage. If they leave the market prices would come down in a hurry. But people would complain about that too.

[Theophilus]

The “upward pressure” on prices is pure inflation, caused by Congressional spending insanity.

[KobraKai]

I can tell you, we had been planning on moving for over a year. I had two different trips to both Colorado and Tennessee for job interviews, and both places offered me work, and about a $20,000 increase in pay. But, the housing market is so inflated, that even with that increase, I still would have lost money, or just broke even, after factoring in the new mortgage/rent payments. All of our increased wages would have went into housing, and it might not have been enough to cover it. So, I decided to just stay here in my very nice house with a sub %3 interest rate and only 9 years left, even though I don’t make much money here.

[sauropod]

.

[isthisnickcool]

The interest rates are killing independent boat dealers. This includes not only the high interest rates for individual boat purchases but also the rates for boat dealer floor plans. Boat dealers cannot sell inventory or keep it. Many boat dealers have failed, are failing or will fail.

The lockdown for Covid combined with hyper-inflation due to insane money printing/borrowing is going to trash this county for a long time.

[Ancesthntr]

Why would you sell your home in a high interest rate environment, unless you had to do so? Getting a new home will require an even higher rate to finance. I can’t think of a dumber move, if you have a choice.

[Ancesthntr]

You should buy gold and silver with the extra money, not Treasuries. We’re spending $5 billion/day more than we take in, and that’s going to worsen inflation by a lot.

[CapnJack]

Agree, when I bought my home in 1993 I think the rate was somewhere between 7.5 and 8 (or maybe higher). That was “normal” for back then.

People just haven’t seen those “historical normal” rates in 20 to 30 years so they just don’t realize how cheap the 2 7/8 to 3 1/2 rates really were and think that those rates were the norm.

[politicket]

You should buy gold and silver with the extra money, not Treasuries.

We are going into a worldwide deflationary recession. Commodities drop during a recession - including gold and silver.

Would rather have profit than loss.

[politicket]

Have they asked you to refinance at a higher interest rate?

They're definitely pushing home improvement loans.

My bank also keep calling - seeing the outflows of deposits into treasuries. They want me to sell my treasuries and buy their 6-month CD.

First of all - that would be stupid.

Second - why are they snooping on my account to see the treasury interest coming in and contacting me because of it.