An article from the Associated Press describes how low interest rates are preventing some people from selling their homes. According to data from CoreLogic cited in the article, more than one-third of homes with mortgages have interest rates below 4%. These homeowners got “the deal of the century” according to Glen Kelman, CEO of real estate brokerage Redfin. But they may be experiencing “rate lock in,” where they choose not to sell because purchasing a new home with a mortgage at higher interest rate, even one that costs the same as the old one, will result in higher monthly payments.
The article states that the combination of lower supply and higher prices is limiting the housing recovery. CoreLogic’s chief economist Mark Fleming estimates that 3.6 million homeowners are unlikely to sell this year because of the “rate lock in” effect. Also, 40% of homeowners do not have enough equity to sell their homes, either because their mortgages are higher than their home’s value or their equity is not enough to pay the sale costs and a down payment on a new home. Partly due to this limited supply, CoreLogic states that prices rose 8.8% nationwide.
The article states that while higher prices are expected this year, which would help homeowners create equity and allow more homeowners to become sellers, mortgage rates are also expected to rise and this could increase the “lock in” effect.
