Published by REALTOR.com | July 17, 2023
Mortgage rates are inches away from 7%—but less than a tenth of U.S. homeowners have a home loan at that rate.
Only nine percent of all existing mortgages in the U.S. were taken out with a rate of above six percent, according to data from the Federal Housing Finance Agency, and analyzed by Torsten Slok, chief economist of Apollo Global Management.
Around a quarter of all mortgages—23 percent—have a rate of less than three percent, Slok added, and 38 percent of homeowners have a mortgage rate of between three and four percent.
In other words, the vast majority of U.S. homeowners have low mortgage rates.
Today’s home buyer vs. pandemic-era buyer
Millions of homeowners took advantage of ultra-low rates during the pandemic to lower their monthly payments. A recent study by the New York Fed found that 14 million outstanding mortgages were refinanced during the pandemic years. The typical homeowner who did so during this period saw their monthly payment fall by $220, the Fed said.
But today’s homebuyer is facing a much more expensive path to homeownership: Mortgage rates have surged since, and the 30-year was averaging at 6.96 percent as of July 13, according to Freddie Mac.
A typical new homeowner today will join the ranks of the small group that has a home loan with an interest rate of above six percent.
But with millions of homeowners holding onto such low rates, that presents a big problem that’s frozen the housing market—one of low supply. That’s driven by their reluctance to sell.
If a homeowner was to sell their home and purchase another property, if they need to take out another mortgage, they would have to take out a home loan at a rate at seven percent or even higher, depending on what their lender was quoting them.
“The bottom line is that homeowners across America do not have any incentive to move and get a new mortgage,” Slok said.
And “this is a key reason why the supply in the housing market continues to be so low,” he added.
The supply of new homes has been severely constrained by this imbalance between current rates and lower rates held by the majority of homeowners.
