Unlocking Housing Supply Tipped by 5% Mortgage Rate

By Alex Tanzi | Bloomberg

US homeowners are almost double as likely to sell if their mortgage rate is 5% or higher, but only 1 in 5 mortgaged homes meet that criteria.

For those with a mortgage rate of at least 5%, 38% plan on selling their homes, according to a quarterly survey by Zillow. Only 21% of holders with rates below that threshold said the same.

Existing-home sales have declined nearly every month since the beginning of last year due to higher mortgage rates discouraging owners from moving. Prospective buyers have turned to new construction instead since the supply of homes for resale is low.

About 80% of mortgage holders have reported rates below 5%, and approximately 90% have rates below 6%, as stated by Zillow. Nearly a third reported rates below 3%.

Mortgage rates “are not likely to rise to 5% in the near future,” said Orphe Divounguy, a senior economist at Zillow Home Loans. “This means that many homeowners will only move for major life events such as having a new baby or retirement.”

Nevertheless, nearly a quarter of homeowners are considering selling their homes in the next three years or currently have their homes listed for sale, which is significantly higher compared to the 15% who said the same one year ago, according to Zillow. This suggests that inventory could increase soon.

Of course, mortgage rates are not the only factor influencing one’s decision to move. About two-thirds of homeowners are looking to upgrade to a nicer home, while 45% cited a growing family.