Homeowners Find Relief as Mortgage Rates Remain Favorable Amidst Rising Housing Costs

Despite the recent surge in mortgage rates, homeowners in the United States have reason to be grateful as the median mortgage holder’s rate still remains below 4%. This comes as a relief for many, considering that rising housing costs have made home affordability reach its lowest level since 2007, according to property analytics company Attom Data.

The challenging conditions in the housing market have made it difficult for some buyers to enter the market, while also discouraging sellers from listing their properties. As a result, existing-home sales in September plummeted to their lowest level since 2010. However, for homeowners who are not in a rush to sell, the news of rising mortgage rates has little consequence, except for potentially delaying their plans to sell further.

In September, the median U.S. first-lien mortgage holder enjoyed a low rate of 3.5%, according to loan-level data from ICE Mortgage Technology. This is the lowest weekly rate recorded by Freddie Mac since the beginning of 2022. The fluctuation in mortgage rates over the past couple of years has been quite remarkable, with rates hitting historic lows during the early years of the pandemic before climbing to the highest level in over two decades.

Freddie Mac data reveals that mortgage rates are now 1.3 percentage points higher than they were at the beginning of the year. However, the difference between the rates paid by typical borrowers and recent rate quotes highlights the financial incentive for homeowners to stay put. For instance, a homeowner with a 30-year fixed-rate mortgage at 3.5% would pay approximately $860 less per month on a $400,000 home compared to someone who purchased a home last week with a 7.79% mortgage rate, the most recent weekly average from Freddie Mac.

This unique dynamic in the housing market has led to a scarcity of supply, as sellers have fewer incentives to list their properties due to the rapidly rising rates. At the end of September, there were only 1.13 million homes for sale, less than half of the pre-pandemic average of about 2.5 million, according to historic National Association of Realtors data. Consequently, the rate of home sales in September dropped to its slowest pace since October 2010.

Surprisingly, even as mortgage rates have climbed, home prices have continued to rise. This can be attributed to the mortgage rate lock-in effect, where sellers are reluctant to list their homes, further exacerbating the supply shortage. Redfin’s data supports this trend.

Looking ahead, the S&P CoreLogic Case-Shiller Indices for August, set to be released on Tuesday, are expected to show a 0.9% gain in home prices from July’s levels and a 1.6% increase compared to the previous year. Despite the challenges posed by rising mortgage rates, U.S. homeowners have largely remained unfazed. However, other countries with different loan structures, such as Germany and the United Kingdom, may face more significant risks due to adjustable-rate mortgages and shorter-term loans being more prevalent.

While financial motivations play a role in the decision to sell a home, the choice to move is often driven by personal preferences. According to Zillow’s upcoming Quarterly Survey of Homeowner Intentions and Preferences, the majority of homeowners without plans to sell indicated that they would likely stay put, even if mortgage rates were to fall. The desire to upgrade to a more desirable house or one with better features was the most commonly cited reason for listing a home.

In conclusion, despite the challenges posed by rising mortgage rates and housing costs, U.S. homeowners have found solace in the fact that their rates remain favorable. The current market conditions have created a unique situation where sellers are hesitant to list their properties, resulting in a scarcity of supply. However, homeowners’ preferences and financial motivations continue to shape the housing market landscape.