'Locked in': Many homeowners feel stuck in place as mortgage rates on the rise — but here’s why a quarter of would-be sellers plan to sell now anyway
Mortgage rates have moved up for the first time in over a month, propelled by persistent inflation and strong employment data.
With federal reports pointing to a “still-resilient, though cooling economy,” many believe the Fed will raise the federal funds rate at next month’s meeting, pushing mortgage rates higher, says Hannah Jones, economic research analyst at Realtor.com.
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But with higher rates comes lower demand — and both buyers and sellers already seem hesitant to step off the sidelines.
“While spring is typically a season marked by a lively housing market, this year is proving to be less energetic than previous ones,” Jones says.
30-year fixed-rate mortgages
The average 30-year fixed rate climbed to 6.39% last week, compared to the week before’s average of 6.27%.
A year ago at the same time, the rate averaged 5.11%.
“Home prices have stabilized somewhat, but with supply tight and rates stuck above 6%, affordable housing continues to be a serious issue,” says Sam Khater, chief economist at housing giant Freddie Mac.
“Unless rates drop into the mid-5% range, demand will only modestly recover.”
15-year fixed-rate mortgages
The average rate on a 15-year home loan increased to 5.76% from 5.54% last week. At the same time a year ago, the 15-year fixed-rate averaged 4.38%.
However, Nadia Evangelou, senior economist at the National Association of Realtors, says the housing market is still making some progress.
“Although the seasonally adjusted annual figure of home sales reported in the news dropped by 2% in March, about 34% more homes were sold in March compared to February based on the raw count of home sales,” she writes.
“This increase is actually larger than the pre-pandemic historical average growth of 33% that typically occurs between March and February.”
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Sellers feel ‘locked in’ by their mortgage rate
Over 4-in-5 potential sellers feel “locked in” to their current homes, due to their lower mortgage rates, according to a recent survey from Realtor.com.
While more than half plan to wait until rates decline before selling, a quarter say they'll sell now anyway, for reasons ranging from changing family needs to the desire to earn a profit.
Owners currently have a near-record high level of equity in their homes, and some sellers are expecting a bidding war and to receive more than the asking price or receive an offer within a week.
That may be a realistic expectation in some more affordable markets — like Rochester, New York, which was named the hottest housing market in the month of March. But overall national demand remains fairly static.
Jones warns, “Sellers who do enter the market are met with lower buyer demand, which puts downward pressure on prices, as sellers vie for buyer attention.”
She adds that sellers need to “calibrate” their expectations to the current market.
“Buyers are seeing less new inventory, which means that a freshly listed, well-priced home may be met with enthusiasm, resulting in a favorable deal for both parties.”
Mortgage applications plunge as rates rise
Last week, demand for mortgages sank 8.8% from the previous week, according to the Mortgage Bankers Association (MBA).
Refinance activity also dropped by 6% — and is 56% lower than the same week a year ago.
“Last week’s increase in mortgage rates prompted a pullback in application activity. With more first-time homebuyers in the market, we continue to see increased sensitivity to rate changes,” says Joel Kan, vice president and deputy chief economist at the MBA.
“Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act.”
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