Mortgage Rate Lock In, Underwater, and Paid in Full Restrain Owners from Selling
During most of the post WWII era there has been a constant churn of homes. In California the assumption was that the average homeowner would move every five years. People moved to better neighborhoods, bigger homes, due to corporate transfer, for a better job, or to be close to or far from relatives. We may be seeing a very large cultural shift brought about by a demographic and financial pressures that are tending to keep people right where they are.
Seemingly the most pressing of these outside pressures is low interest rates. More than 1/3 of all home mortgages are under 4%. With interest rates now closer to 4.25%, even a move to a similarly priced home will result in higher payments. It isn't unusual to hear homeowners say: "Why would I ever sell? I might rent it out, but with these interest rates, I'd be crazy to sell."
So that leaves 2/3 of the homes that are not faced with mortgage rate lock in. But half of those remaining have no mortgage at all. Some of those are recent purchases by investors and foreign buyers paying all cash for homes.
While owners with no mortgage have the most freedom to sell without consequence, they are also the least likely to sell. For investors, the incentive would only be there if the prices get ahead of the real rate of return. For those who paid off the mortgage and have lived in the home for decades, the most likely sale is only in probate.
Statistically, the issue gets a bit sticky with the last group. 40% of all homes are still underwater - they owe more on the mortgage than the home is worth. Certainly some of the under 4% mortgage might be in this group, which would explain why the total is over 100%. One can also surmise that there are very few holding mortgages over 5% who owe any substantial amount.
Others are reporting that millenials are perfectly fine with living with mom and dad or renting. They like the freedom to change locations as they change jobs, get married, or add kids. They are putting off the home ownership piece until their lives settle down.
As noted elsewhere in this blog, the balancing act between demand and supply seems precarious. The possible tipping points are many. An influx of legal and or illegal immigrants can drive demand and thus rental and purchase prices. An improving economy will result in some folks moving out on their own or going from three sharing space to two. The current economic expansion has not reached the lower middle class, so millions continue to share space who would rather be on their own.
The odds seem to favor a continuation of increased rents and purchase prices, especially in nicer neighborhoods. However, rent pressures are also increasing in the lesser precincts as the population grows faster than new housing units are being added.
If you are interested in a mortgage at what are STILL historic low rates, where you also may say in a year or two, "Why would I ever sell this property with this interest rate?" call Bill Rayman today before the rates go higher. 424-354-5325
Bill Rayman Home Mortgage12121 Wilshire Blvd
LA CA 90025