Housing Market Sees Modest Gains as ’Lock-In Effect’ keeps Many Homeowners in Place
A slight dip in mortgage rates spurred a 4% increase in pending home sales nationwide in August, according to a report Monday from the National association of Realtors, wiht gains concentrated in the Midwest, South, adn West. However, experts say a meaningful number of homeowners are reluctant to sell, creating a persistent challenge for market inventory.
The average rate for a 30-year fixed mortgage currently sits at 6.3%, a ample increase from rates secured by many current homeowners.Julia Fonseca, a finance professor at the University of Illinois at Urbana-Champaign, notes her own rate of 2.125% on a 15-year fixed mortgage is typical – roughly 80% of borrowers would face substantially higher costs if they were to purchase the same home today.
“These higher rates have really meaningfully deterred borrowers from moving,” Fonseca said.
Patti Jo Fitzpatrick,president of Minnesota Realtors,observed a small increase in showings,noting a recent buyer was able to view a property twice before making an offer – a luxury not seen in recent years. She also pointed to a slight rise in inventory due to the lower cost of borrowing, but cautioned that increased costs for homeownership, such as energy and insurance, are offsetting some of those gains.
Lawrence Yun, chief economist at the National Association of Realtors, highlighted affordability as a key factor. “Americans are very concerned about affordability. So in markets where homes are affordable, they’re more readily able to respond,” he said.
Economists like Fonseca and Kyle Mangum,a senior economist with the Philadelphia fed,are studying the long-term implications of this “lock-in effect,” a phenomenon largely unseen in recent decades as mortgage rates generally trended downward. As a result, many transactions are now driven by necessity – ”for jobs, to downsize, as life happens,” mangum explained.
