07/31/2024
Here's some insightful information we wanted to share from a local mortgage advisor regarding the current real estate market.
Freddie Mac reports that more than six out of ten homeowners have locked-in rates significantly lower (4% or less) than those currently available even to would-be borrowers with excellent credit scores and financial histories. Therefore, property owners often think long and hard before letting go of their relatively comfortable mortgages. According to a paper released by the Federal Housing Financing Agency (FHFA), homeowners are 18.1% less likely to sell their properties for every additional point that mortgage rates rise over the rate they locked in when they purchased their home, and we have certainly come a long way from the record-low 2.65% mortgage rates offered in 2021.
Fewer sellers also means less inventory and, therefore, fewer chances to find the perfect home that fits all the list of “must haves” that would justify tightening your belt to meet your new mortgage obligations. Mortgage rates are not the only thing that has gone up in recent years: property prices have also reached record-high values in many places and are still climbing due to the disparity between supply and demand for housing.
However, while low inventory has undoubtedly been fueled by those holding historically low-rate mortgages and hanging onto their homes, not to mention lifestyle changes that fueled the housing rush of the pandemic years, this is not a new problem. The housing shortage found its roots in the 2008 crisis when many builders shut down their businesses for good. Those who survived, focused their efforts on building higher-end custom homes instead of the riskier and less profitable large-scale projects that would have allowed newly formed households to find a home and replace outdated housing stock. Experts point to a current shortage of four to seven million units, particularly when it comes to entry-level homes. They also predict that it will still probably be many years before there are enough homes available to satisfy demand while prices are likely to keep climbing.
Perhaps it's Time to Move On
Although the Federal Reserve Bank is likely to cut interest rates later this year, mortgage rates are unlikely to return to below 4% anytime soon. However, the reduction in interest rates could cause home prices to climb rapidly again.
As property values skyrocketed in recent years, current homeowners have benefitted from a built-in advantage thanks to their increased equity which gives them the opportunity to roll that equity into their next home.
If your quality of life is declining due to your living conditions or if you find yourself denying some lifestyle changes, such as a new job or moving closer to friends and family because you are hoping that the housing market will eventually cool down, it may be time to bite the bullet, keeping in mind that you may have the option to refinance your new property if the mortgage rates were to decline dramatically in a few years.
