…Homeowners are moving less, creating a drag on the economy, fewer commissions for real estate brokers and a brutally competitive market for first-time home shoppers who cannot find much for sale and are likely to be disappointed during real estate’s spring selling season.
But even though the economy and the housing market have improved — unemployment is below 5 percent, and steadily rising home prices have freed millions of people from the scourge of “underwater” mortgages — economists expect elevated homeownership tenure to continue for the next decade or even longer. That is because the better economy has come with a steady rise in interest rates.
Rates for 30-year fixed mortgages were at 4.05 percent last week, after being under 3.5 percent as recently as October, according to Freddie Mac, the mortgage finance giant. And with the Federal Reserve signaling further interest rate increases, economists expect mortgage rates to head toward 5 percent by the end of the year. The higher that rates climb, the more tempting it becomes for people to stay in place.
“Once mortgage rates climb to 5 or 5.5 percent, we are going to start to see the lock-in effect really take hold,” said Svenja Gudell, chief economist at Zillow.
Of course, many other factors could influence the housing market. The tax plan outlined by President Trump would remove some of the incentives for homeownership, even as it left the mortgage interest deduction in place. And the lingering weakness in the latest quarterly economic report could prompt the Fed to hold off on raising rates.
In any case, the increase in homeownership tenure is yet another example of how the economy is still feeling the effects of the 2008 financial crisis and the Federal Reserve’s extraordinary policy measures to address it. It also highlights just how far the housing market remains from its pre-recession form.
Single-family home starts, which were at an 821,000 annual rate in March, are about half what they were at the peak of the housing bubble. Existing-home sales are about one-fourth below their pre-recession high. This is despite years of population growth and the movement of millennials, now America’s largest generation, into adulthood and the work force.
Glenn Kelman, chief executive of Redfin, a national real estate brokerage firm, sees this in the form of a persistent inventory shortage. More people are buying tear-downs. The bidding wars that have come to characterize hot job markets like San Francisco and Seattle are spreading to less-expensive cities.
Mr. Kelman said those who would normally sell their home to get the down payment for a new one were increasingly becoming landlords because their low-interest loans meant extra profit in rent — translating into less business for him.
“People who buy a home and sell their home are the meat and drink of the real estate business, but increasingly, we’re only getting half the sales from them,” he said.
Source: Real Estate’s New Normal: Homeowners Staying Put – The New York Times
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