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  • Writer's pictureTom Reilly

The Problem with Low Mortgage Rates...Sellers Don't Want To Move!

MARCH 11, 2021

The Problem with Low Mortgage Rates? Sellers Who Won’t Move

Couples with a 2.7% mortgage may want to downsize after children leave yet find it cheaper to stay put. If so, it would further limit the tight home-sale inventory.

NEW YORK – Over the past year, homeowners have been rushing to refinance their mortgage and lock in all-time-low interest rates, which remained below 3% until last week. But could these super-low rates encourage homeowners to stay put even longer, starving the market of desperately needed inventory?

Joe Mellman, senior vice president and mortgage business leader at TransUnion, says he believes homeowners – particularly first-timers who tend to trade up after a few years – may be unwilling to move in the future because of their low refinance rates. Mellman told lending news service Scotsman Guide that if a homeowner has an interest rate of 4%, for example, a 1 percentage point increase in rates could mean that homeowner would pay 25% more in interest if he or she took out a new mortgage. And if that homeowner is considering a more expensive home, they might decide that higher rate will have a sizable impact on affordability.

“What we may end up seeing is a lot more consumers staying in their first home as opposed to moving up,” Mellman says. “That, in turn, is going to put pressure on first-time home buyers because now you don’t have this natural vacuum of people leaving the affordable housing stock and moving into more expensive housing stock.”

Lenders refinanced 2.23 million home mortgages in the fourth quarter of 2020, a 71% hike from a year prior, according to the ATTOM Data solutions’ fourth-quarter 2020 U.S. Residential Property Mortgage Originations Report. Refinance activity rose in the fourth quarter compared to the previous quarter in 88% of the metro areas analyzed. The largest quarterly increases in refinances occurred in:

Sioux Falls, S.D. (up 75.3%)

Reno, Nev. (55.5%)

Toledo, Ohio (55.1%)

Lake Charles, La. (47.1%)

Chicago (up 44%)

Source: “Today’s Refinance Boom Will Likely Impact the Future Homebuyer,” (January 2020); ATTOM Data Solutions; “Top 10 REFI Mortgage Lenders in Q4 2020,” ATTOM Data Solutions (March 5, 2021)

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