One of the biggest challenges in the housing market in recent years has been a low inventory of homes for sale. Although buyer demand has surged, the number of new listings and new home construction has not been able to keep up. Fast forward to mid-2022 and we began to see buyer demand substantially slow down as The Federal Reserve has been rapidly increasing interest rates in an effort to combat out-of-control inflation. Although one byproduct of this slowing buyer demand has been a slight improvement in the housing inventory, there are other factors impacting the housing market now.
Handcuffed by a mortgage rate
Current mortgage interest rates are approximately double where they were a year ago. While this has certainly impacted the amount of home buyers in the market, it is also now impacting the amount of home sellers. According to a recent analysis, 85% of U.S. homeowners with a mortgage have an interest rate that’s far lower than today’s average level of 6%. While many of these homeowners have been wanting to upgrade or downsize their homes, a lot of them are making the financial decision to stay in place, as opposed to lock in a substantially higher mortgage interest rate by moving. As a result, this high proportion of homeowners that feel locked into their low mortgage rate is contributing to a steep decline in listings. As an example, for the four weeks ending September 11th, the number of new listings fell by 19% year-over-year. For perspective, this is the largest drop since May 2020 (when we were at the peak of the pandemic shutdowns).
With mortgage rates recently eclipsing 6% for the first time since 2008, these rising rates have pushed the typical homebuyer’s monthly mortgage payment up 42% from a year ago. Needless to say, this is putting homeownership further out of research for many Americans.
In some markets, we are seeing homeowners opt to not list their homes for sale due to a fear of falling prices. With this said, the overall decrease in the number of new listings is hindering the growth in housing supply, thus keeping home prices relatively stable in many markets. For those Americans that are considering selling their homes and relocating to a less expensive market, this is still a viable option regardless of mortgage interest rate levels.