Homeowners Find 5% Mortgage Rate Ideal for Moving

The average 30-year fixed-rate mortgage, which dipped below 3% in January 2021, has now surged above 7%. This sharp increase in mortgage rates has deterred many homeowners from selling their homes, as they would likely face higher mortgage payments for a new home purchase at current rates. A tipping point seems to be around a 5% mortgage rate, where homeowners are much more willing to sell. Prospective homebuyers also prefer rates not exceeding 5.5%, according to surveys. The low mortgage rates of around 3% or even below 4% have effectively created a “golden handcuff” effect, binding homeowners to their existing properties.

Despite the uncertainty of when rates might drop, this situation has led to a critical shortage of homes for sale, with listings lagging behind previous years. The housing market is facing unique challenges, and while there’s no guarantee rates will return to historic lows, experts suggest that they may not remain as high as they are indefinitely. The Federal Reserve’s decisions on interest rate hikes, to be determined in September, could further shape the future of mortgage rates and the housing market.

Growing Trend: Homeowners Skipping Home Insurance

A growing number of homeowners are choosing to skip home insurance due to rising premiums, with the average policy for a $250,000 home now costing $1,428 annually, up by 20% from the previous year. This trend is especially notable among those with lower annual household incomes, with an estimated 12% of US homeowners lacking insurance coverage. However, financial advisers caution against forgoing insurance, emphasizing the significant financial risk it poses, as most people cannot afford to fully replace their homes in the event of damage.

In the past three years, homeowners without a mortgage or those who have inherited homes opting out of insurance have been on the rise, primarily driven by affordability concerns. While some homeowners have the financial means to cover potential costs, roughly half earn less than $40,000 per year, highlighting the financial strain posed by high home insurance prices.

Surprise Surge: Pending Home Sales Reach 3-Month High

In an unexpected turn of events, pending home sales in July rose by 0.9%, marking the highest level in three months, as the National Association of Realtors (NAR) reported. This increase aligns with the broader trend in new home sales, which saw a 4.4% uptick. However, it’s important to note that pending home sales remain 14.0% below last year’s levels. NAR’s Chief Economist, Lawrence Yun, points out that the marginal increase in contract signings suggests the potential for further growth, given the strong job market and expanding pool of prospective homebuyers. Nevertheless, rising mortgage rates and limited housing inventory have temporarily hindered many from purchasing.

Regionally, pending home sales increased in the South and West regions but declined in the Northeast and Midwest. Despite these regional variations, all four major U.S. regions experienced a decline in pending home sales in July compared to the same period last year, primarily due to lower housing inventory and higher mortgage rates than the previous year.

 

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.