- High mortgage rates are often blamed for “locking in” homeowners and discouraging home sales, but a new survey suggests there’s more to the story.
- While many homeowners are reluctant to give up their locked-in low mortgage rates for today’s higher ones, proximity to family and friends, liking their house, and high home prices are also important.
- The number of homes for sale may not rise much even if mortgage rates fall, economists at Fannie Mae predicted.
Homeowners are growing more reluctant to sell their houses—and it’s not just the “lock-in” effect of today’s high mortgage rates keeping them there, a recent poll found.
The survey by government-sponsored mortgage giant Fannie Mae was carried out in the first quarter and found 29% of homeowners said they were staying in their house longer than they had initially planned to. In addition to concern about mortgage rates, people said they were likely to stay in their homes longer than originally intended because of high home prices; the fact that family and friends live nearby; or that they simply like their houses.
“These findings suggest to us that a fairly strong majority of mortgage borrowers’ future moving plans may not be affected by their mortgage rate,” wrote Mark Palim, deputy chief economist, and Rachel Zimmerman, national housing survey lead at Fannie Mae, in an analysis.
The survey sheds light on an odd phenomenon in the housing market: Soaring mortgage rates have priced many would-be buyers out of the market—which ought to put downward pressure on prices. Yet prices are rising, breaking records even.
The low supply of housing has prevented buyers from getting too much leverage, since they’re competing over a dwindling number of listings. There were only 1.1 million homes for sale in September, less than half the pre-pandemic average of 2.5 million for that month, in data from the National Association of Realtors going back to 1999.
When explaining why there are so few homes for sale, economists, including those at Fannie Mae, have pointed to the fact that mortgage rates have risen so much since early 2022 when the Federal Reserve began its campaign of anti-inflation interest rate hikes.
Many homeowners refinanced during the pandemic, when the average rate offered for a 30-year fixed mortgage hit an all-time low of 2.65% in 2021, according to Freddie Mac. Now that rates have soared close to 8%, fewer people are willing to sell their homes and trade their ultra-low rate for one that potentially adds hundreds a month to their mortgage bill.
The survey, based on a monthly phone poll of 1,000 homeowners, poked holes in that explanation. Out of the 29% of people who said they were staying in their homes longer than originally planned, 21% of mortgage holders gave high mortgage rates as the primary reason. In other words, 6% of mortgage holders said they were delaying moving because of rates.
“While the lock-in effect is real for many consumers, the full range of reasons provided by mortgage borrowers and outright owners for planning to stay in their homes longer paints a significantly more nuanced picture,” the economists wrote. “Several reasons, including simply liking the home and placing value on living near family, friends, and their workplace, have also contributed to the lack of supply.”
Many homeowners renovated their homes during the pandemic, potentially adding to their appeal. And low interest rates, which fueled a frenzy of homebuying in 2020 and 2021, may have made people move earlier than they otherwise would have, reducing the need to move in the future, they speculated.
Moreover, there are longstanding trends driving people to stay in their houses longer. The average tenure of home ownership was 12.3 years in 2022 according to Redfin, down from the pandemic peak of 13.4 years, but almost double from 2005. That’s largely because the average age of the population is rising, and more baby boomers are determined to age in place in their homes, according to an analysis by economists at Redfin.
Beyond that, there simply aren’t enough houses out there for everyone who wants one. For decades, homebuilding has lagged behind household formation, that is, people moving out of their parents’ houses and starting families of their own. There are 6.5 million fewer single-family homes than are needed in the U.S., according to an analysis by Realtor.com.
The conclusion of Fannie Mae’s analysis may be dismaying for buyers sitting on the sidelines waiting for the day that interest rates finally come down.
“Even if mortgage rates were to decline meaningfully in the intermediate term, we would not expect to see a surge in home listings,’ they wrote.