- Nine out of ten American mortgages carry an interest rate of less than 5%, Axios reported.
- Mortgage rates are rising, and that could mean fewer existing homeowners will sell and re-enter the market.
- Without those additional houses on the market, the US housing bubble could keep growing.
Current homeowners have a big financial reason to stay put — and that could make the US' housing shortage even worse.
Nine out of ten American mortgages currently carry an interest rate of less than 5%, according to financial database Black Knight. Nearly two decades ago, the typical mortgage trended around 6%, which means a lot of today's homeowners have locked in relatively affordable rates.
However, for those yet to buy, homeownership is becoming increasingly more expensive. As home prices soar and mortgage rates climb, many existing homeowners may be turned off from putting their home up for sale and re-entering today's real estate market.
"This combination of accelerating growth and sharply rising interest rates has resulted in the tightest affordability in 15 years," Black Knight researchers wrote.
Although low mortgage rates enticed millions of Americans to purchase homes over the last two years, rates are now on the rise — and it spells bad news for prospective buyers. As affordability plummets to decade lows, existing homeowners are shying away from selling their homes and listing properties. With less homes on the market, prospective buyers aren't likely to see home prices fall anytime soon — and that could mean the US housing bubble is just getting started.
Homeowners may stay put as the real estate market becomes more expensive
The pandemic ushered in a period of relatively low mortgage rates — but they're beginning to reverse course.
According to Fannie Mae, 92% of homeowners say their current home is affordable. However, the general population — both homeowners and non-homeowners — doesn't think so favorably as Fannie's data show that 69% of Americans believe it's becoming too hard to find affordable housing.
"Both homeowners and renters have significantly increased perceptions that housing has become less affordable and difficult to find in their area," Fannie researchers wrote.
In February, mortgage rates hit their highest mark since the start of the pandemic and have been rising ever since. According to Freddie Mac, the average U.S. fixed rate for a 30-year mortgage rose to 5% for the week ending on April 14, 2022, eclipsing a pandemic low of 2.68% in December 2020.
George Ratiu, the chief economist at Realtor.com, says the sharp jump in mortgage rates means the real estate market has reached a decisive turning point. According to him, although 2022 started on strong footing, rising rates and lackluster housing inventory have driven housing affordability to new lows.
"The shortage of inventory pushed prices to record highs even before the spring season got underway," Ratiu said in a statement. "At current rates, buyers of a median-priced home are looking at monthly mortgage payments which are $460 higher than a year ago, a 38% increase from April 2021."
While an uptick in mortgage rates may not seem too damaging — it could add up. Homeowners weary of an already expensive real estate market may choose to sit this housing cycle out. Without their additional housing inventory, the US housing bubble could be doomed to continue growing.
"For many American families, today's mortgage rates are closing the door on being able to afford to buy a home this spring," Ratiu said.