Why Low Rates Aren’t Always Good for Housing – Had to share

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Why Low Rates Aren’t Always Good for Housing

DAILY REAL ESTATE NEWS

Mortgage rates are near historic lows, which is great news for home owners and buyers. But the situation could prove to be a big thorn in the side of the recovery.

More than one-third of homes with a mortgage have a mortgage rate below 4 percent, according to estimates provided by CoreLogic, a real estate data provider. Many home owners have taken advantage of low rates recently, fueling a refinance boom. Some home buyers were able to snag a record low of 3.3 percent interest in 2012.

As such, many home owners may be more inclined to stay put, unwilling to swap out a low mortgage rate for a new mortgage that could carry a rate up to one percentage point higher or more in the coming months. Those who can’t stay put may decide to keep their home and rent it out. In any case, the number of homes for-sale could continue to be low and contribute to slower home sales, housing analysts note.

Mark Fleming, chief economist at CoreLogic, estimates that up to 3.6 million home owners will be unlikely to sell this year because they do not want to give up a lower mortgage rate.

“They got the deal of the century,” Glenn Kelman, CEO of Redfin, a real estate brokerage, told The Associated Press. “I don’t think in 100 years anyone will be lending money at 3.5 percent. How do you walk away from a deal like that?”

Indeed, The Associated Press reports that this marks a significant shift from the way the housing market has worked in the past three decades. “For most of that time, whenever a home owner decided to trade up to a better home, mortgage rates usually were lower than the last time they had bought,” The Associated Press reports. “That helped make a new purchase seem more attractive.”

Economists say “rate lock-in” is a contributing factor for why so few homes are for sale. The housing market has faced a shortage of homes since late 2012. For every $1,000 increase in a home owner’s annual mortgage payment, the likelihood that the home owner would sell dropped as much as 16 percent, according to a 2011 study by the Federal Reserve Bank of New York.

Source: “Record-Low Mortgage Rates Now Haunt the Housing Market,” The Associated Press (July 11, 2014)

 

I read this article at: http://realtormag.realtor.org/daily-news/2014/07/14/why-low-rates-arent-always-good-for-housing?om_rid=AACmlZ&om_mid=_BTxCGtB87N9-7C&om_ntype=RMODaily

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Sabrina Caton - The Caton Team Realtors

A native Californian with a passion for residential real estate and writing. A full time Realtor with Berkshire Hathaway HomeServices - Drysdale Properties.

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