Over the past two years, home buyers and sellers have been pummeled by three colliding forces: the highest borrowing rates in nearly two decades, a crippling shortage of inventory, and a surge in home prices. People who bought their starter home a few years ago are finding themselves frozen in place by the “rate-lock effect” — they bought when interest rates were historically low, and trading up would mean a doubling or tripling of their monthly interest payments. More than 60% of U.S. homeowners have mortgages locked at rates of 4% or less, according to Freddie Mac. Avoiding the new, higher rates has become a huge deterrent not just to buying but to selling, which in turn has reduced inventory for prospective buyers. “The trade-up buyer has just disappeared,” said Sam Khater, chief economist at Freddie Mac. “The lack of supply, it’s not just that it’s causing prices to go up, but it’s causing prices in the bottom half of the price distribution to go up even more.” Over the past 20 years, the price for entry-level homes has nearly tripled, according to CoreLogic, a property information firm. Every other tier of single-family homes has also increased — just more slowly.
Source: New York Times; 6/2/2024