About time the rest of the industry noted the behavioral trend that we were one of first to identify and discuss.
2) Mortgage lock-in, and this is one of the major trends I’m looking at in the near future. Should mortgage rates go up, borrowers are going to be less inclined to move if it means losing their sweetheart mortgage rate. I know I wouldn’t give up my 3.95% for a 5.5%. So what’s it mean? I’ll stay longer.February 2013
Likewise, this will further intensify the “mortgage lock in” dynamic that I’ve noted here on numerous occasions. If interest rates rise significantly in the future, borrowers with extremely low rate mortgages will be less likely to trade up or laterally as their financing costs will rise dramatically. Instead they may chose to stay and in some cases remodel or expand instead of selling. We already have this with the HARP 2 borrowers, HARP 3 will significantly increase the number of homeowners in this group.January 2013
As the U.S. housing market grapples with its lowest sales since the mid-1990s, economist Peter Schiff warns of a looming crisis in which homeowners are resorting to renting their properties to retain their existing mortgage in what he calls a deteriorating economy.
With the National Association of Realtors (NAR) reporting a slump in existing home sales and a surge in median sales prices last week, Schiff, on his The Peter Schiff Show podcast, pointed to a potential trend in the real estate market in which homeowners will begin renting out their homes to retain the properties on which they have low mortgage rates versus selling on the open market, which would cause them to take on a new mortgage with a higher interest rate.
“Existing homes aren’t selling,” Schiff said. “The people who are in them have low mortgages and they’re not motivated to sell, and the people who want to buy them can’t afford to buy them because they can’t get those rock-bottom mortgage rates.
“The guys that own the homes don’t want to sell because where are they going to live? I mean, they’ve got these cushy low mortgages that they don’t want to give up. Now, maybe they’ll rent out their homes so they can hang on to the mortgage.”
The situation, which is forcing homeowners into what experts call the “lock-in” effect, is compounded by the interest rate hike campaign that the Federal Reserve embarked on last year aimed at curbing inflation. While the Fed has signaled that its job is done in terms of rate hikes, the effects are long lasting, especially on mortgage rates.