Why Homeowners Aren’t Selling?
One of the primary reasons why home values has been increasing at a rapid rate is because there are a large number of buyers who are currently searching for the right home. However, the increasing values are also caused by a lack of inventory on the housing market. Even though homeowners are receiving high offers for their properties, only a relatively small percentage of these owners are comfortable with putting their property up for sale. This article explores why homeowners aren’t selling at the moment.
Current Homeowners Have Fixed-rate Mortgages with Low Interest Rates
Current homeowners have almost no reason to sell. When they do, however, they have almost all of the negotiating power in the transaction since inventory is low and the number of buyers on the market is high. Today’s homeowners have high amounts of home equity and extremely low mortgage rates as the result of the Federal Reserve dropping interest rates towards the beginning of the COVID-19 pandemic.
In a recent Redfin study, it was found that the average homeowner in the U.S. has a fixed-interest rate for their loan that’s much lower than current interest rates. More than 85% of Americans have a mortgage that comes with an interest rate of lower than 5%.
There are also many Americans with fixed mortgage rates in the 2-4% range. The average interest rate for a 30-year fixed mortgage today is over 7%. Even though many homeowners are able to receive a high price when they decide to sell their home, gaining more profits doesn’t mean much when a new home will come with a high interest rate that likely wipes out some or all of these profits.
Additional Reasons Why Homeowners Aren’t Selling
There are also several additional reasons why homeowners aren’t placing their properties on the market. Even though the current state of the market is the primary factor that’s causing most homeowners to avoid selling their properties, a Rocket Homes study finds that more than 48% of homeowners aren’t looking to sell because they like the home they currently have.
It’s also common for modern homeowners to choose to continue living in their existing home because it has a great location and because they don’t want to purchase a new home in such a competitive market. If someone has purchased a home over the past five years, they might not want to sell because they would like to spend more time enjoying the investment they’ve made.
The state of the economy has made everything more uncertain. Even though homeowners are practically guaranteed to sell their homes quickly and at a good price, anyone who needs to buy a new home will likely find it difficult to do so at a reasonable price. Homeowners who currently have a low interest rate don’t have much reason to sell.
Even if a homeowner wants to sell and find a new home, they are also tasked with making offers when there are many other buyers on the market who could make competing bids. Low inventory makes it more difficult for a buyer to make a bid without anyone else offering a competing bid. If you’re interested in a $320,000 home and have made an offer to match, there’s always a possibility that another potential buyer will come in with a higher offer.
In the meantime, current homeowners have the option of waiting for the market to become somewhat more balanced, which reduces the risk of becoming a buyer. Keep in mind, however, that it’s practically impossible to time the market. Once you determine that the market is getting better, you might have missed your opportunity.
If you’re a buyer, there are some signs that indicate that the competition is starting to drop slightly. The rising interest rates have pushed some buyers back to renting. While this doesn’t solve the issue of low housing inventory, it does give you a better chance of being able to make an offer that will be accepted.
Buying a home with the current market conditions is likely going to be challenging since most homeowners aren’t selling. Along with the ever-increasing interest rates, many homeowners find that they are comfortable with the security that owning a home provides. If you want to invest in a home, make sure that your offer is strong as there is still a lot of competition.