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Mortgage rates and the housing market

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MU82:
Interesting piece in the NYT about how so many American homeowners have such low mortgage rates that it is making them unwilling and/or unable to sell their houses. And that, as much as anything, has almost frozen the housing market in many parts of the country.

https://www.nytimes.com/2024/04/15/upshot/mortgage-rates-homes-stuck.html?

These locked-in households haven’t relocated for better jobs or higher pay, and haven’t been able to downsize or acquire more space. They also haven’t opened up homes for first-time buyers. And that’s driven up prices and gummed up the market.

Another way to state how unusual this dynamic is: Between 1998 and 2020, there was never a time when more than 40 percent of American mortgage holders had locked-in rates more than one percentage point below market conditions. By the end of 2023, as the chart below shows, about 70 percent of all mortgage holders had rates more than three percentage points below what the market would offer them if they tried to take out a new loan.

jesmu84:
There are a zillion things wrong with the US housing market.

Previous low mortgage rates are just a drop in the bucket.

MU82:

--- Quote from: jesmu84 on April 15, 2024, 09:27:10 AM ---There are a zillion things wrong with the US housing market.

Previous low mortgage rates are just a drop in the bucket.

--- End quote ---

My OP wasn't about "wrong" or "right." It simply offered a link to a fact-filled article on one of the main reasons the housing market is "gummed up."

This actually is one of the things affecting the housing situation for my daughter and SIL right now. They own a house in a Seattle suburb that they bought before they had their 2 kids. It's too small, and not in a walkable area, and they want to move. But they have a 3% mortgage and aren't wild about the idea of selling that to buy a more expensive house that also would come with a 7%+ mortgage. Also, partially because of this mortgage-rate situation, they are finding inventory to be very low where they want to buy; potential sellers in those areas also don't want to give up their low rates.

dgies9156:
Mortgage rates are keyed to the 10-year Treasury rate. So long as the Federal Reserve uses higher interest rates to lock down inflation, mortgage interest rates will remain at current levels.

The irony in all of this is that those of us who came of age in the late 1970s and 1980s would have drooled at the current market interest rates. Many of us took out 30-year, fixed rate mortgage loans on our first homes that had an interest rate of between12 percent and 14 percent. We never dreamed that rates would get into the 2 percent to 4 percent range.

The difficulty with wide swings in mortgage interest rates is "consumer reach." When rates dropped to very low levels, homeowners had a couple of choices. The first is refinance downward, get a lower payment or pay off your home more quickly with the same payment on a shorter term loan. The second is to sell your house, buy up and keep your payment relatively flat on a much larger outstanding balance. Much of the country did the latter.

The housing market is locked up because young, first-time homebuyers who can afford homes at 4 percent can't afford the same home at 7 percent. They're either going to have to come up with a lot more down, which delays homebuying, or buy a much smaller property. For existing homeowners, many became aggressive assuming cheap mortgage money would always be out there. It's not and so the numbers don't work on a new home.

Incidentally, if rates do come down dramatically, expect housing prices to skyrocket. We made a fortune in the 1980s when we bought using a 12.75 percent mortgage and sold seven years later when mortgages were in the 6-8 percent range. I'd expect that as rates fall and demand recovers, prices will see double digit increases. My SIL and daughter are starting to look for a home in the Syracuse, NY market and as long as they can make the payment, the house would be a sterling investment.

Goose:
82

You should cash out of some of your stocks and buy your daughter a home.

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