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Higher Rates Keep 20% of Sellers from Listing

Many homeowners want to upsize or downsize, but an estimated 20% stay in place to avoid replacing their current low mortgage rate with a higher one.

SEATTLE – Six of every seven (85%) U.S. homeowners with a mortgage have an interest rate that’s far lower than today’s average level of 6%, according to a Redfin analysis of Federal Housing Finance Agency (FHFA) data. For the analysis, Redfin considered a “low mortgage rate” as anything under 5%.

These homeowners may long to upgrade their home or downsize – and may have been waiting years for the chance to do so – but they’re making a financial decision to stay in place.

As a result, higher mortgage rates do more than discourage buyers – they also discourage sellers.

The high share of homeowners who feel locked into their low mortgage rate is contributing to a steep decline in listings, according to Redfin. New listings slumped 19% year-over-year during the four weeks ending Sept. 11, the largest drop since May 2020.

For example, Redfin found that in Atlanta, Chicago, Los Angeles and Washington, D.C., homeowners with a mortgage rate below 3.5% were 7.6% less likely to put their homes up for sale in August than homeowners with a rate above 3.5%.

It’s also a fear of falling prices

Listings are also declining because some owners hesitate to list their home when the market is slowing and prices are starting to fall in some areas.

“The plunge in new listings is hindering growth in housing supply, which is keeping home prices relatively high even though the market is slowing down,” says Redfin Deputy Chief Economist Taylor Marr. “Housing supply fell 1% in August from the month before; normally, it would rise during a downturn.”

Mortgage rates last week eclipsed 6% for the first time since November 2008 – during the Great Recession – as the Federal Reserve seeks to quell inflation. Rising rates have pushed the typical homebuyer’s monthly mortgage payment up 42% from a year ago, fueling a broad slowdown in the housing market.

“The good news is that people who already own homes have locked in relatively low mortgage payments,” Marr says. “The bad news is that homeownership is moving further out of reach for other folks as rising rates, elevated home prices and the persisting housing shortage make buying a house more expensive.”

It’s not all homeowners

Even with higher mortgage rates, some current homeowners still decide to list their home. Thanks to rising home prices, many owners built up thousands of dollars in home equity during the pandemic. For them, moving and taking on a higher interest rate isn’t a huge deal – especially if they’re moving to a more affordable place.

However, the prospect of cashing out that home equity is starting to wane as price-growth slows and homebuyer demand dries up.

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