Existing home sales fell to their lowest level in nearly 30 years last year, and much of that was due to the so-called lock-in effect. This refers to homeowners who lock in low market mortgage rates and refuse to sell even if interest rates rise. Of course, if the mortgage rate is 8%, you can imagine why someone with a 3% mortgage wouldn’t want to give it up.
However, mortgage interest rates have since declined, with the average 30-year fixed rate at 7.11%. But it remains high compared to historic lows during the pandemic and several years before. And while there is some evidence that the lock-in effect is easing, Zillow senior economist Orfe Divongi seems to be debunking it.
The number of new listings in February increased by 21% compared to the same month last year. But “much of the month-on-month increase occurred in markets with a disproportionate number of homeowners who are not burdened with fixed mortgage rates,” he said in an analysis released today.
Zillow said metro areas with the highest percentage of homeowners without a mortgage saw the biggest increase in listings. Additionally, approximately 11 million homeowners do not have a mortgage and are “mortgage ready,” according to Zillow. This means that even at these interest rates, you can still afford a new home loan.
“Unsurprisingly, most of these homeowners are older generations who have built up equity in their homes over many years and/or people who live in more affordable markets,” Divongai wrote. .
Essentially, homeowners who pay off their mortgages while home values are rising can afford to buy another home, with or without a 7% mortgage rate. You can guess which generation it is. Baby boomers and the silent generation beyond them are generally the least affected by changes in mortgage rates. 14 percent of Silent Generation homeowners are not locked in, and 17 percent of baby boomers who own their own home (Zillow estimates the largest generation of homeowners) are not locked in. yeah. By comparison, only 6% of millennial homeowners don’t have to worry about the lock-in effect, according to Zillow.
And homeowners are least likely to be affected by interest rate changes in metropolitan areas such as Detroit, Cleveland, Oklahoma City, Buffalo and Pittsburgh, according to Zillow. For example, his 27% of Pittsburgh homeowners have what Zillow calls “no rate lock.” In Buffalo he is 23%. In Cleveland, it’s 22%.
Meanwhile, in four California cities, just 3% of the homeowner population doesn’t have to worry about mortgage rates or feeling trapped. Of course, those are the usual suspects. Los Angeles, San Diego, San Francisco, and San Jose. California is chronically undersupplied, which is reflected in skyrocketing home prices. The lock-in effect is not helping the state or the country as a whole.
“Research shows that mortgage rate lock-in reduces the probability of a home sale by 18% for each time the market mortgage rate exceeds the mortgage rate set by the homeowner, resulting in a “It has been shown that approximately 1.33 million transactions have been blocked by now and until the end of 2023,” Devongai wrote. “Despite slowing demand for housing amid very challenging house price conditions, house prices rose by 5.7% due to reduced supply.”
Still, “supply is beginning to thaw, and the seasonally adjusted number of existing homes for sale has shown a steady upward trend since last spring,” JPMorgan global market strategist Stephanie Arriaga said recently. And existing home sales soared in February, data from the National Association of Realtors shows. This was the largest monthly increase in the past year.
We’ll soon find out what the existing home sales will look like last month. luck We previously reported that this year’s spring shopping and sales season could be a microcosm of the normal season, as mortgage rates remain high and home prices remain high, but income of homes that haven’t kept up and are missing millions of dollars.
