US homeowners aren't selling and here's why
Mortgage rates have dropped some, but many would-be sellers still have financial disincentives to move
It is a challenging time in the housing market: Danielle Hale
Realtor.com chief economist Danielle Hale breaks down housing affordability on Maria Bartiromos Wall Street.
When mortgage rates rose toward 8% last fall, the housing market that had boomed in the pandemic era slowed to a crawl, with demand hitting the lowest level in nearly three decades.
The average rate for a 30-year fixed mortgage is now more than a percentage point lower than its October peak, fueling hopes that more would-be sellers might be willing to make a move and thereby ease the ongoing inventory shortage.
Homes in Centreville, Maryland, on Tuesday, April 4, 2023. The U.S. housing market is suffering a severe inventory shortage as many homeowners are reluctant to move. (Photographer: Nathan Howard/Bloomberg via Getty Images / Getty Images)
Although there have been a few signs that the real estate market might come back to life, fresh data indicates it is actually deteriorating further.
The Kobeissi Letter posted analysis from Reventure Consulting this week indicating that despite the drop in rates, mortgage demand fell last month to a fresh 30-year low, down 14% from a year ago and 40% from pre-pandemic levels.
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Meanwhile, available home supply is still down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020.
So why are more homeowners not willing to move? Maybe the question should be, ‘Why would they?’"
"Even with a drop from 8% to 6% mortgages, many homeowners have a financial disincentive to move." The Kobeissi Letter explained in a post on X, noting that 90% of borrowers still have mortgage rates below 5%.
Homes in Rocklin, California, on Tuesday, Dec. 6, 2022. High interest rates and soaring home prices are keeping homeowners from making a move. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
At the same time, it is not just reluctance to taking on a higher interest rate that is causing many homeowners to stay put. The price of homes continues to soar, making the affordability crisis worse.
U.S. home prices hit a new record high in November, marking the 10th consecutive month of price hikes. The problem is unlikely to be resolved anytime soon.
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"A more substantial improvement in mortgage rates is necessary to attract more sellers to the market," Realtor.com economist Jiayi Xu said in a statement. "If for-sale inventory fails to meet the demand from buyers, there is a possibility that prices may start to climb once again, contributing to the persistence of higher home prices."
Homes in Hercules, California, on Wednesday, Aug. 16, 2023. Mortgage rates have fallen more than one point since October, but not enough to boost housing demand. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
The Kobeissi Letter predicts rates need to fall significantly before the housing market sees real movement again.
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"In order to stimulate meaningful housing market demand, we need to see rates fall to 5% or lower," the analysts wrote. "Until then, we have a historically undersupplied market with high prices."
FOX Business' Megan Henney contributed to this report.