Trapped at Home: Americans and Low-Rate Mortgages

Many homeowners are reluctant to sell their homes and move due to their historically low mortgage rates. With rising home prices and interest rates, staying put is becoming an attractive option for homeowners with low-rate mortgages, leading to a market shortage of homes for sale.

Most homeowners today have mortgages with rates below 4% or even 3%, causing nearly 82% of home shoppers to feel “locked-in” by their existing low-rate mortgages. A recent report from Zillow found that homeowners are more willing to sell their homes when mortgage rates reach 5% or higher. However, since rates are unlikely to drop anytime soon, buyers can expect a continued standstill in the housing market. The shortage of homes for sale puts more pressure on prices, making affordability an issue for potential homebuyers. While the housing market is currently facing uncharted territory with high mortgage rates and low inventory, there is a possibility that the market will eventually pick up steam again when rates start to fall.

ADP: Private Sector Adds 324K Jobs in July, Surpassing Expectations

Private sector companies exceeded expectations in job growth for July, adding 324,000 jobs, with the leisure and hospitality sector leading the way with a substantial increase of 201,000 jobs in hotels, restaurants, bars, and related businesses. This figure surpassed the Dow Jones consensus estimate of 175,000 jobs, though it marked a decrease from June’s downwardly revised 455,000 jobs. The report indicates that the U.S. job market remains strong despite the Federal Reserve’s efforts to slow the economy and combat inflation.

Services-related industries dominated job creation, accounting for 303,000 jobs in July, reflecting the economy’s transition from goods-oriented sectors during the early COVID-19 pandemic. Information services added 36,000 jobs; trade, transportation, and utilities grew by 30,000; and other services contributed 24,000 jobs. The ADP report also noted a year-on-year wage increase of 6.2%, though it marked the lowest growth since November 2021. Job gains were concentrated in firms with fewer than 50 employees, which added 237,000 positions, while companies with 50 to 499 employees added 138,000 jobs, and larger firms lost 67,000 jobs.

First-Time Buyers Need 13% More to Purchase Starter Homes

According to Redfin, first-time homebuyers now need to earn about $64,500 annually to afford the typical “starter” home, a 13% increase from the previous year. The median sale price for a starter home reached a record $243,000 in June, marking a 2.1% increase from the prior year and over a 45% increase since before the pandemic. Moreover, mortgage rates rose significantly, averaging 6.7% in June, compared to 5.5% in June 2022 and just under 4% before the pandemic.

Finding a starter home has become even more challenging as new listings of starter homes dropped by 23% year-over-year in June, the most significant drop since the pandemic began. The total number of starter homes on the market also declined by 15%, leading to a 17% year-over-year decrease in sales of starter homes in June. Only in San Francisco, Austin, and Phoenix do first-time buyers need less income than a year ago. However, the median sale prices in those markets have declined: 13.3% to $910,000 in San Francisco, 12.2% to $347,300 in Austin, and 9.7% to $325,000 in Phoenix.

The current housing market situation is leading to a growing wealth disparity in the country as homeowners benefit from soaring home values. In contrast, many others are locked out of the market and unable to build equity and long-term wealth.

 

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.