By Jeff Ostrowski
NAHB’s economist calls it “mortgage lock-in effect.” Homeowners with a rate of 3% or less refuse to list their home even if they have a yen to move or upsize.
NEW YORK – The sharp rise in mortgage rates in 2022 has hampered housing affordability and led to fewer home sales. Aside from those obvious bits of fallout, the run-up in rates has also delivered a surprise: Many homeowners are choosing not to sell because they don’t want to give up the super-low rates they locked in during 2020 and 2021.
In the depths of the pandemic, many homeowners refinanced into mortgages with rates of 3% or less. Now that rates are around 7%, many are deciding to simply stay put.
“Sellers are on strike,” says Mark Fleming, chief economist at title insurer First American.
Homeowners choose not to put their homes on the market for a variety of reasons. Some are worried about finding another home at an agreeable price, or they’re concerned about the economic outlook. Fannie Mae’s Home Purchase Sentiment Index fell in September, its seventh consecutive monthly decline, as soaring mortgage rates crimp affordability.
Giving up a record-low rate doesn’t appeal to many homeowners, either. Based on a 30-year repayment schedule, a borrower who took out a $400,000 loan last year at 3% is paying $1,686 a month. Borrowing the same amount at a 7% rate pushes the payment to $2,661 – a jump of $975 a month, or 58%.
That has led to what Robert Dietz, chief economist of the National Association of Home Builders, calls the “mortgage lock-in effect.”