Cheap rates on existing loans are keeping wealthy homeowners in place, while others struggle to afford buying at today’s high prices, according to Intel survey data.
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Many homeowners are open to listing their current residence but struggle to afford buying a new one simultaneously.
These homeowners are a sought-after group for real estate professionals.
- 32 percent of homeowners who already own a home feel they are not financially prepared to buy at current prices and mortgage rates, according to the latest Inman-Dig Insights consumer survey.
- Another 11 percent of homeowners were uncertain about their financial readiness to buy.
Interestingly, this group is less likely to be enticed by lower rates compared to wealthier consumers, according to Intel’s findings.
Many of these homeowners, who are generally older but not retired, purchased their homes when they could afford them and may have paid off their loans since then.
What prevents them from buying, and what needs to change for them to list their homes?
Intel explores these questions in this report.
Stranded in place
A homeowner is considered “stranded” if they are unable to buy a home in today’s market due to financial reasons or uncertainty.
What are the characteristics of a stranded homeowner?
One key factor is their lower income:
- 58 percent of stranded homeowners had a household income below $75,000 a year, compared to 37 percent of financially able homeowners.
- The percentage of stranded homeowners with incomes below $50,000 a year was more than double that of the financially stable group.
Additionally, stranded homeowners were more likely to be older, with 42 percent aged 50 or older compared to 31 percent in the financially secure group.
They were also more likely to be white and less likely to be Black.
While this group is older, they do not consider themselves fully retired due to the limitations of the study, which only includes adults aged 24-65 with a job.
Stranded homeowners are more likely to report a decline in their financial situation over the past year:
- Only 20 percent reported being “better off financially” than a year ago, while 43 percent said their finances had worsened.
- In contrast, financially stable homeowners were three times more likely to say their financial position had improved over the past year.
While homeownership was once attainable for both groups, those who can no longer afford to buy have seen a recent shift in their financial circumstances, potentially due to income changes and rising prices.
Their situation is influenced by high mortgage rates but cannot be resolved by rate changes alone.
More than rates
One common factor among this group is their low mortgage rates on existing loans:
- 27 percent of stranded homeowners had a mortgage rate below 3.5 percent, compared to 19 percent of financially able homeowners.
- Despite having mostly 30-year fixed-rate mortgages, stranded homeowners were less likely to have a 15-year fixed-rate mortgage with lower rates.
However, this is just one aspect of their situation. Many homeowners who are not “locked in” to an ultra-cheap rate are not as affected by today’s high rates as expected. In fact, a significant percentage of these homeowners own their homes mortgage-free, making them less responsive to rate drops compared to those with mortgages. Additionally, a large portion of these homeowners are unlikely to buy a home in the next 12 months, with many stating that no decline in mortgage rates would change their minds. These homeowners are more likely to cite reasons such as high home prices, lack of down payment, credit issues, or income qualifications as barriers to purchasing a new home. While the rate-lock effect is real, it seems to have a stronger impact on financially stable homeowners who may be hesitant to trade their current low rates for higher ones. For many other homeowners, the conditions that allowed them to purchase their homes in the past are no longer present, and falling rates may not be enough to change that. Both Inman and Dig Insights are majority-owned by Toronto-based Beringer Capital. For more information, please contact Daniel Houston.