After Years of Low Mortgage Rates, Home Sellers Are Scarce

Larry and

Corina Lewis

of Tarrytown, N.Y., have two children and expect to need a bigger home in the next few years. But their current 30-year mortgage rate is 2.75%.

“The thought of giving this up in order to pay double in interest, that’s a nauseating thought for me,” Mr. Lewis said. Even if the average mortgage rate falls from its current level, he said, “I still don’t see it ever getting quite that low.”

Some homeowners will always need to sell due to job relocations, divorces, deaths or other life events. Yet if those who have the option not to move decide to stay put, that could keep the inventory of homes for sale below normal levels and keep home prices elevated, even if demand remains low.

The lack of housing inventory is one of the major reasons home prices have remained near record highs, despite seven straight months of declining sales as interest rates have roughly doubled since the start of the year.

“I like to call it the ‘golden handcuffs’ of mortgage rates,” said

Odeta Kushi,

deputy chief economist at

First American Financial Corp.

“You’ve got existing homeowners who are sitting on these rock-bottom rates, and what is their financial incentive to move and lock into a rate that’s potentially as much as 3 percentage points higher than what they’ve locked into?”

Millions of Americans locked in historically low borrowing rates in recent years when the Federal Reserve kept short-term interest rates low. As of July 31, nearly nine of every 10 first-lien mortgages had an interest rate below 5% and more than two-thirds had a rate below 4%, according to mortgage-data firm

Black Knight Inc.

About 83% of those mortgages are 30-year fixed rates, Black Knight said.

The Fed reversed course and started to raise rates in March in an effort to tame inflation. Those rate increases, including another three-quarters of a percentage point on Wednesday, have rippled through the mortgage market. The average rate on a 30-year fixed-rate mortgage was 6.29% in the week ended Sept. 22, up from 2.88% a year earlier, according to housing-finance agency

Freddie Mac.

Alyssa and

Brandon McDuffie

reached out to a real-estate agent this summer to explore selling their Raleigh, N.C., house, which they bought in 2018. The agent said they could probably sell for at least $200,000 more than the $312,000 they paid. The couple decided to hold off until at least next year because they are reluctant to give up their 3.375% mortgage rate.

“With home prices going up the way they are, if we sold our house, it would make a great profit, but we’re going to eat up that profit in another home we’re going to buy for a higher interest rate,” Mr. McDuffie said.

In an analysis of four major metro areas—Atlanta, Chicago, Los Angeles and Washington—Redfin found that homeowners with mortgage rates below 3.5% were less likely to list their homes for sale in August compared with homeowners with higher rates.

Economists say it is difficult to predict how much the increase in mortgage rates could reduce home listings, because rates haven’t climbed this rapidly in decades. The National Association of Realtors estimated that when mortgage rates increased in 2018, the existing-home inventory was 12% lower than it otherwise would have been.

“I really don’t see inventory rising,” said

Lawrence Yun,

NAR’s chief economist. By NAR’s measurement, which includes homes that are under contract, the supply of homes for sale at the end of August fell slightly from July.

Sam Khater,

chief economist for Freddie Mac, said an analysis he did in 2016 of past periods of rising rates showed a decline in sales in which buyers’ prior mortgage rates were more than 2 percentage points below their new mortgage rates. But there was no change if the difference between the rates was less than 2 percentage points.

Many sellers today have significant equity in their current homes, which can help them put down larger down payments on their new purchases to offset the effect of the higher interest rates. Those who are moving from high-cost markets to cheaper areas might also be less sensitive to higher rates, Mr. Khater said.

Still, about one-third of about 1,000 homeowners surveyed by John Burns Real Estate Consulting in July said they felt locked into their current homes due to rising rates.

Among the 197 homeowners who said they were saving to buy a home, only 15% said they would be willing to take on a new mortgage rate of 6% or higher, the survey showed.

Craig Young

and

Kathryn Cataldo

hoped to sell their house in Huntsville, Ala., this summer, but they have pushed back their plans in response to the market slowdown.

“I feel like we’ve missed the sweet spot in being able to sell our house,” said Mr. Young, who is 64. They are not in a rush to move, but the house has a steep driveway that could become difficult for them to navigate as they age, he said.

“If [mortgage rates] keep going up, I’m going to hang on,” he said.

Write to Nicole Friedman at [email protected]

Larry and

Corina Lewis

of Tarrytown, N.Y., have two children and expect to need a bigger home in the next few years. But their current 30-year mortgage rate is 2.75%.

“The thought of giving this up in order to pay double in interest, that’s a nauseating thought for me,” Mr. Lewis said. Even if the average mortgage rate falls from its current level, he said, “I still don’t see it ever getting quite that low.”

Some homeowners will always need to sell due to job relocations, divorces, deaths or other life events. Yet if those who have the option not to move decide to stay put, that could keep the inventory of homes for sale below normal levels and keep home prices elevated, even if demand remains low.

The lack of housing inventory is one of the major reasons home prices have remained near record highs, despite seven straight months of declining sales as interest rates have roughly doubled since the start of the year.

“I like to call it the ‘golden handcuffs’ of mortgage rates,” said

Odeta Kushi,

deputy chief economist at

First American Financial Corp.

“You’ve got existing homeowners who are sitting on these rock-bottom rates, and what is their financial incentive to move and lock into a rate that’s potentially as much as 3 percentage points higher than what they’ve locked into?”

Millions of Americans locked in historically low borrowing rates in recent years when the Federal Reserve kept short-term interest rates low. As of July 31, nearly nine of every 10 first-lien mortgages had an interest rate below 5% and more than two-thirds had a rate below 4%, according to mortgage-data firm

Black Knight Inc.

About 83% of those mortgages are 30-year fixed rates, Black Knight said.

The Fed reversed course and started to raise rates in March in an effort to tame inflation. Those rate increases, including another three-quarters of a percentage point on Wednesday, have rippled through the mortgage market. The average rate on a 30-year fixed-rate mortgage was 6.29% in the week ended Sept. 22, up from 2.88% a year earlier, according to housing-finance agency

Freddie Mac.

Alyssa and

Brandon McDuffie

reached out to a real-estate agent this summer to explore selling their Raleigh, N.C., house, which they bought in 2018. The agent said they could probably sell for at least $200,000 more than the $312,000 they paid. The couple decided to hold off until at least next year because they are reluctant to give up their 3.375% mortgage rate.

“With home prices going up the way they are, if we sold our house, it would make a great profit, but we’re going to eat up that profit in another home we’re going to buy for a higher interest rate,” Mr. McDuffie said.

In an analysis of four major metro areas—Atlanta, Chicago, Los Angeles and Washington—Redfin found that homeowners with mortgage rates below 3.5% were less likely to list their homes for sale in August compared with homeowners with higher rates.

Economists say it is difficult to predict how much the increase in mortgage rates could reduce home listings, because rates haven’t climbed this rapidly in decades. The National Association of Realtors estimated that when mortgage rates increased in 2018, the existing-home inventory was 12% lower than it otherwise would have been.

“I really don’t see inventory rising,” said

Lawrence Yun,

NAR’s chief economist. By NAR’s measurement, which includes homes that are under contract, the supply of homes for sale at the end of August fell slightly from July.

Sam Khater,

chief economist for Freddie Mac, said an analysis he did in 2016 of past periods of rising rates showed a decline in sales in which buyers’ prior mortgage rates were more than 2 percentage points below their new mortgage rates. But there was no change if the difference between the rates was less than 2 percentage points.

Many sellers today have significant equity in their current homes, which can help them put down larger down payments on their new purchases to offset the effect of the higher interest rates. Those who are moving from high-cost markets to cheaper areas might also be less sensitive to higher rates, Mr. Khater said.

Still, about one-third of about 1,000 homeowners surveyed by John Burns Real Estate Consulting in July said they felt locked into their current homes due to rising rates.

Among the 197 homeowners who said they were saving to buy a home, only 15% said they would be willing to take on a new mortgage rate of 6% or higher, the survey showed.

Craig Young

and

Kathryn Cataldo

hoped to sell their house in Huntsville, Ala., this summer, but they have pushed back their plans in response to the market slowdown.

“I feel like we’ve missed the sweet spot in being able to sell our house,” said Mr. Young, who is 64. They are not in a rush to move, but the house has a steep driveway that could become difficult for them to navigate as they age, he said.

“If [mortgage rates] keep going up, I’m going to hang on,” he said.

Write to Nicole Friedman at [email protected]