Housing Report 2022-09-19-Hunkering Down

A lack of sellers due to the pandemic is understandable for 2020 and 2021. With vaccines and boosters, 90% of Americans today see COVID as a manageable problem (Axios-Ipsos, September 2022). Yet, far fewer homeowners are placing their homes on the market in 2022. This trend has persisted and became more severe over the past couple of months. Through August, there are 5,473 missing sellers in Orange County compared to the 3-year average prior to COVID, 19% less.

What is precluding so many homeowners from selling their homes this year? The only major changing underlying factor is the swift rise in mortgage rates. According to Mortgage News Daily, mortgage rates rocketed higher, from 3.25% at the start of this year to over 4% by the end of February. They climbed to 4.75% at the end of March, over 5% in April, and reached 5.5% at the start of May. With a high inflation reading in mid-June, rates soared to 6.25%. They bounced between 5% and 6% in July and August. In September, with another high inflation reading and the Federal Reserve exclaiming that they were going to do everything in their power to slow the economy and curb inflation, mortgage rates shot up to 6.42% today, its highest level since November 2008.

So many homeowners are not moving because they simply do not want to sell, as they are locked into an incredibly low fixed mortgage rate. According to Black Knight, 72% of all homeowners with a mortgage have a 30-year fixed mortgage rate at 4% or lower, 55% have a rate at 3.5% or lower, and 34% have a rate at 3% or lower. Comparing the monthly payment at today’s 6.42% rate to homeowners with substantially less locked in monthly payments is very revealing. An $800,000 mortgage today at 6.42% would be a principal and interest payment of $5,015 per month, compared to $3,819 at 4%, or $3,592 at 3.5%, or $3,373 at 3%.

“Hunkering down,” an unexpected trend that emerged this year and appears to be here to stay until there is forced selling down the road or mortgage rates fall back down to earth.