Although the pandemic brought hardship amongst many families, including death, isolation and a new normal, to how we approach social interaction. It also brought with it a booming economy, with plunging interest rates that we will likely never see in our lifetime again. That created an opportunity for homeowners to lock in a low rate, or better yet, afford the home they had their eye on all those years but could not afford. These new interest rates, raised the common consumers budget significantly, opening the door to lower their payment on their current home, moving up, buying an investment property, or refinancing to finally do that remodel they always dreamed of.
Now that the dust has settled on the Pandemic and we are into a that new normal on how we approach everyday interactions, why do so many people feel trapped in their home?
The answer is simple, after bottoming out at 2.93% in January 2021, the average rate for a 30-year, fixed-rate mortgage currently sits near 7%, according to Bankrate.com. With interest rates hovering between 6.5%-7%, people begin to feel as if they cannot move because they will get less house costing more money if they sell. Or they still want to move up but cannot afford the new payment at the current interest rate.
A recent report from Zillow found: Homeowners are nearly twice as willing to sell their home if their mortgage rate is 5% or higher and yet, 80% of mortgage holders have a rate below 5%. Since it’s unlikely rates will drop anytime soon, buyers can expect a continued standstill for now.
As the CEO of Compass, Robert Reffkin said, "When Mortgage rates hit 5% expect a flood of housing inventory".
So, will interest rates come down again? In many ways, we’re in uncharted territory right now. Between 1978 and 1981, mortgage rates similarly doubled from around 9% to more than 18%, compelling more homeowners to hold on to their homes. However, mortgage rates weren’t at record lows in the late 70s before they started to skyrocket in the early 80s, nor did home prices increase as rapidly. But if history is any guide, there is a good chance the housing market will eventually pick up steam again like it has in the past. While mortgage rates may not return to sub-3% levels again anytime soon — if ever — there’s no reason to think that they’ll stay as high as they currently are forever. And if, or when, they do start to fall, we’ll likely see the housing market become more active again.
*Some content was referenced through CNBC. To see the full article, click here