BAM Key Details:
- A new report from Redfin shows more than nine in ten U.S. homeowners with mortgages locked into rates below 6%, 80% with rates under 5%, and about a quarter below 3%.
- Homeowners locked into those lower rates and staying put are a primary reason for the dire shortage of new listings, severely limiting options for buyers.
- Sellers are also staying put because a record 60% of them have lived in their current homes for four years or less.
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.
Source: Redfin
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.
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.
Home prices have fallen from the peak reached in 2022, but the median sale price is still more than 30% above the median price from right before the pandemic.
With the combination of those higher prices and today’s mortgage rates, more people are buying homes that are less expensive than the ones they’re selling—some because they’re moving to a more affordable market or because they’re downsizing. Depending on the amount they’re saving on their next home purchase, they may be more willing to take on a higher rate.
The typical monthly payment is up $1,000 from three years ago
Over the past three years, the typical monthly payment on a median-priced home (about $380,000), at an average 6.7% mortgage rate, is at roughly $2,600—a record high that is $300 more compared to one year ago and $1,000 more compared to three years ago, based on median sale prices and average mortgage rates from those periods.
Nearly everyone with an outstanding mortgage has a rate lower than the one they’d get if they bought a home today, but the difference in the gap varies. A homeowner with a 3%–4% rate would feel the difference considerably more than someone with a rate between 5% and 6%.
The bigger the gap, the more likely a homeowner is to stay put and hope rates drop to 6% or lower in the coming months.
About 60% of homeowners have moved in the past five years
A record 59.7% of homeowners with mortgages have lived in their current homes for only four years or less—compared to 47.3% during Q4 2019, right before the start of the pandemic.
The share of homeowners who’ve moved in the past five years has grown dramatically because so many people, liberated by remote work, took advantage of record-low mortgage rates during the pandemic.
Many of these homeowners are staying put simply because they moved recently and have neither the need nor the desire to move again in the near future.
Source: Redfin
Read the full report for more details, including methodology.
Takeaways for real estate agents
Even homeowners locked into lower rates have options to reduce their costs (both upfront and long-term) if they need to move or decide to sell sooner rather than later.
As a real estate agent—having daily conversations with multiple mortgage lenders—you should have some idea of what those options are, so you can help them see the possibilities and know whom to talk to to learn more.
