A Huge Number of Homeowners Have Mortgage Rates Too Good to Give Up
A Huge Number of Homeowners Have Mortgage Rates Too Good to Give Up
On a scale not seen in decades, many Americans are stuck in homes they would rather leave.
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"Stuck" ... yeah I'm stuck, with a bunch of calls, texts and e-mails basically begging me to cash in my equity. I LIKE my house and I make my payments on-time - leave me the hell alone!!
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Don't forget the solar people and house flippers calling from new numbers every week.
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And the door to door salespeople. I had a clever one that other day, instead of "could I interest you in a few review...," this guy pulls out our local netb metering form and asks if we've filled one out. Most don't know what that is and ask, which gives than a way in to pitch solar.
I like the idea of solar, but I'd need to replace my roof given how old it is, and losing those extra years of life just aren't worth the "savings" or whatever. I also got an independent quote years ago, and it's still way lower than anything these door to door clowns are offering (granted, they're after loans, not cash payments).
As a seasoned homeowner, I can now spot them quickly and just say "not interested" and close the door before they can say, "but I'm not a salesperson" or whatever. I'm done being considerate (have had a few people in to give quotes I'm not interested in), so I'm blunt. I have a price in mind, and nobody has gotten within 2x of that.
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The fed ruined the housing market with their Covid response. They dropped rates to near zero with absolutely no strings attached which let everyone with money maximize their leverage and buy all the housing as investments and drive up prices. The low rates should have been reserved for first time home buyers. Instead, investors went crazy and regular families got screwed with higher prices, and then later, higher rates and higher prices. Unless you bought during the 3 months during 2020 before everything exploded, or owned already and got to refi during Covid, everyone else got screwed.
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Plus virtually all of the layoffs we've had are due to the fed's decisions.
I bought right before the pandemic and was able to get a slightly lower rate without paying any extra refi-costs during the pandemic.
But my job is extremely stressful, in an industry hit hard by layoffs. My neighborhood was hit hard by tech flight during and post-pandemic, so my home is not worth what I paid.
I'm made lots of good financial decisions and still got stuck as a result of things outside my control!
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The US should have looked to Australia as an example of why not to do that. We had very low interest rates pre-covid in a bid to try and drive inflation up to about 2.5%. It didn't work because it basically meant that people who had plenty of cash just put that into investment properties and drove house prices through the roof, instead of increasing spending throughout the economy like the reserve bank thought it would. That led to a vicious cycle of property investors using the low rates to continue investing in properties, continuing to drive house prices up and pricing new home owners out of the market.
Then, when the post-covid inflation hit, the reserve bank decided to increase interest rates because if the interest rate drops didn't have an effect on inflation, it should have an effect on inflation in the other direction right? (/s) This meant that the few first home buyers actually got their foot in the door pre-covid were the ones who got punished the most, and the rest of us dealt with the "supply chain issues" (rampant profiteering).
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The Fed eventually ruins everything and is why we are in the position we are now because people who have money purchase investments that are not in the US dollar so that they will go up when inflation hits and people who hold dollars in cash and cash equivalents get fucked. I bought a house in April of 2022 and have a pretty low mortgage rate that I do not intend to give up, just like the article mentions. I've just been doing the things required to keep up with maintenance of the house and have already seen my house go up 20% in value just in two years.
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Well yeah. I wish I bought 2. I can get a house half the price of my current one and the mortgage will be like $200 more per month.
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This is the best summary I could come up with:
The gap that has jumped open between these two lines has created a nationwide lock-in effect — paralyzing people in homes they may wish to leave — on a scale not seen in decades.
Indeed, according to new research from economists at the Federal Housing Finance Agency, this lock-in effect is responsible for about 1.3 million fewer home sales in America during the run-up in rates from the spring of 2022 through the end of 2023.
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.
Professor Fonseca and Lu Liu at the University of Pennsylvania also find that homeowners who are more locked in are less likely to move to nearby areas with high wage growth.
Some of these effects may sound similar to the years after the 2008 housing crash, when a different problem — underwater mortgages — trapped many people in homes they wanted to leave.
For the homeowners who’ve so far been unwilling to sell, however, that sum is a good deal less than the $50,000 that locked-in rates are effectively worth to the typical mortgage holder.
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