Home sales have slowed considerably as mortgage rates began sharply rising this year, reaching 15-year highs. Homes on the market are taking longer to sell. Bidding wars no longer guarantee a seller will get full price.
But buyers are still out there, and there still aren’t enough homes on the market. Selling prices have cooled down in recent months, but median selling prices remain higher than levels a year ago, thanks to the supply-and-demand shortfall.
In fact, that inventory shortfall might be worse because of those sharply higher rates.
“About 85% of homeowners nationwide have a mortgage rate that is more than one full percentage point lower than today’s level of about 6%,” said Redfin deputy chief economist Taylor Marr. “So what that means is they have a substantial savings to just stay in their home with their lower rate.”
Tightening focus to just the D.C. metro, Redfin says that metric is more like 90% of mortgaged homeowners whose current rates are at least one percentage point lower than current averages.
Nationwide, new listings in September were down 19% from a year ago, the largest drop since May 2020.
Redfin notes that particularly in markets like D.C., homeowners who would normally sell when relocating, are instead choosing to hold on to the property and rent it.
“The lower their rates are, the cheaper it will be for them actually just rent out their home,” Marr said. “There is a really strong rental market in D.C. with a lot of turnover.”
Not every homeowner with a mortgage rate far below the current level is deterred from selling, according to Redfin. Many have built up hundreds of thousands of dollars in home equity, and for those individuals, moving and taking on a higher interest rate on a smaller mortgage isn’t a huge deal.
The pandemic also slowed an otherwise dependable pipeline of homes for sale. Some aging homeowners who would typically downsize opted to stay put instead, at times because of pandemic-related safety concerns. That may soon change, adding more inventory to the market.
“This has been dubbed the ‘Silver Tsunami’ of housing supply that could be opened up as people start to move out and downsize to smaller places or retirement communities,” Marr said. “But that will be a long term effect.”