Housing Market's Two Big Issues Right Now

In the current housing market, one of the most significant obstacles facing potential homebuyers is the limited availability of homes for sale. According to Mark Fleming, Chief Economist at First American, there are two primary factors driving this trend.

The first factor is rate-locked existing homeowners. Many homeowners are choosing to stay in their current homes because they have locked in historically low mortgage rates, and they do not want to give up their advantageous interest rates by moving to a new property. As a result, these rate-locked homeowners are not putting their homes on the market, which is contributing to the low inventory levels.

The second factor is the fear of not finding something to buy. Prospective home sellers are hesitant to list their homes because they are concerned about not being able to find a new property that meets their needs. This fear is particularly acute in markets where housing inventory is already low, which creates a self-reinforcing cycle that further limits the number of homes available for sale.

It's important to note that the low inventory levels are not only affecting potential buyers but also impacting the overall housing market. With fewer homes available for sale, prices are being driven up, and some buyers may be priced out of the market entirely. As such, it is crucial for policymakers and industry leaders to address these challenges and explore solutions that can increase the supply of homes for sale.

Rate-Locked Homeowners

According to the Federal Housing Finance Agency (FHFA), the average interest rate for current homeowners with mortgages is less than 4% (see graph below):

Currently, the average mortgage rate for buyers stands at over 6%, which is a considerable increase from previous years. Consequently, many homeowners are choosing to stay in their current homes rather than selling and incurring a higher borrowing cost. This phenomenon, commonly known as being "rate locked," presents a challenge for the housing market as it requires more inventory to meet demand.

However, there is hope on the horizon as experts predict that mortgage rates will gradually decrease throughout the year. This could lead to a shift in homeowners' attitudes towards selling, resulting in an increase in inventory. As such, the housing market may experience a positive trend towards more fluidity and activity.

The Fear of Not Finding Something To Buy

One common concern that many prospective home sellers face is the apprehension of not being able to find a suitable replacement property if they decide to sell. This fear has led many to adopt a wait-and-see approach, keeping them on the sidelines until more options become available.

As a trusted professional, I encourage you to explore all of your options carefully. While it's understandable to feel uncertain about selling, it's important to remember that there are viable alternatives to consider, such as newly constructed homes. In fact, with builders currently offering concessions like mortgage rate buydowns, it may be a particularly advantageous time to explore the option of purchasing a new home.

I am committed to helping you navigate the complex real estate market and make informed decisions that align with your unique goals and circumstances. By staying informed and exploring all your options, we can work together to help you achieve a successful outcome in your real estate journey.

What Does This Mean for You?

If you're thinking of selling your house, now is a great time to do so. Although there are currently two issues that are causing a lower supply of homes for sale compared to pre-pandemic levels, the current market conditions can work to your advantage.

To make the most of this opportunity, it's essential to work with a local real estate professional. They can help you explore your options, including leveraging your home equity. In fact, recent data from ATTOM shows that nearly half of all mortgaged residential properties in the US were considered equity-rich in Q4 of 2022, meaning that the amount owed on the property was no more than 50% of its estimated market value.

By tapping into your home equity, you could significantly reduce the cost of your next home purchase. So, get in touch with a local real estate expert to learn how you can make the most of this favorable market and put your equity to work for you.

Bottom Line

Rate-locked homeowners and the fear of not finding something to buy are keeping housing inventory low across the country. But as mortgage rates start to come down this year and homeowners explore all their options, we should expect more homes to come to the market.