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Rising Rates Could Keep Some Home Sellers on the Sidelines

Updated: Jun 11, 2022

By Paul Bergeron

April 20, 2022 at 07:54 AM

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51% of US homeowners holding a mortgage have rates less than 4%.

Simple math shows that because a lot of homeowners have mortgages at 2% to 3% interest rates, they may think twice before selling their home and buying a new one at 5% interest.

Houwzer’s Bob Griffith, general manager of home services, tells that this strategy could suppress the supply of homes for sale as well as purchaser demand.

“However, a lot of people have a longer-term perspective and realize that 5% rates are historically quite attractive,” Griffith said. “Plus, a lot of non-economic factors go into the decision to sell a home and move elsewhere. It’s both a rational and emotional process.”

He said that in the past two weeks, there has been an increase in the percentage of homes selling below list price, which signals a cooling of demand because there hasn’t been an increase in the supply of homes for sale.

“But that could also be due to the effect higher interest rates have on the ability of borrowers to qualify for financing,” Houwzer said.

Mortgage Rates Highest in a Decade

Redfin reported that 51% of US homeowners holding a mortgage have rates less than 4%—significantly below today’s level of 5%.

Mike Hardy, Managing Partner of California and Nevada for Churchill Mortgage, tells that mortgage rates today can more than startle the market.

“Selling a home with a rate in the high 2′s or low 3′s while evaluating moving, and subsequently accepting a current market rate in the low 5′s can be a shock for many that have a need or desire to move up,” Hardy said. “The combination of higher rates and higher tax, based on recent appreciation and higher purchase price, is causing the usual wave of move-up buyers to rethink their plan and default to home improvements instead.”
Hardy said that this is one of the issues negatively impacting first time buyers and exacerbating the entry-level housing inventory shortage “as a higher-than-usual percentage of typical move-up buyers look at the numbers and realize it is in their best interest not to sell.”

Fewer Buyers, Less Inventory

Rising rates will slow down certain segments of the market, but overall they are unlikely to move the needle much, Steven Ostad, founder and principal, Real Quick Capital, tells “If people aren’t moving, then there will be fewer buyers in addition to less inventory. So, it will not have a huge impact on the market because the market is unique given there’s a huge shortage of supply. It would be one thing if supply/demand were equal and no one wanted to move, but that is not the case.

“There is currently not a lot of inventory, meaning if people do not want to move and preserve their interest rate, there will not be a big impact. So, it will not create a crash, but it will slow down a little bit.”

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