Record low mortgage rates are now a major concern for home buyers. That’s why

Too many homeowners have affordable mortgage that are worth saving, which is a problem for the housing market.

In addition to high mortgage rates and steep home prices, lack of existing homes for sale keeps new customers on hold. In recent CNET Money Poll13% of US adults said having access to more inventory would help them consider buying a home.

The limited housing supply is partly due to the “rate lock-in effect.” Homeowners who locked themselves out historically low mortgage rates at the start of the pandemic, they couldn’t afford to raise (in some cases doubling) the interest rate on their mortgages, so they stayed put.

Fewer sellers mean fewer choices for buyers looking for homes on the market. “It’s cruel, it’s really very hard,” he says Maya Sly, broker Keller Williams.

Federal Reserve he is expected to do his thing second interest rate cut this year as of November 7 – by a quarter of a percentage point (0.25%). But don’t expect mortgage rates to drop sharply anytime soon. In fact, since the Fed’s first rate cut in September, mortgage rates have risen to nearly 7%. Central bank interest rate decisions influence home loan rates, but do not directly set them.

It will take several months for mortgage rates to drop significantly due to weaker economic data and additional Fed rate cuts. However, when that happens, more homeowners may start packing up and moving, potentially opening up more inventory.

Limited housing stock and high housing prices

The rate locking effect reduces the supply of housing in several different ways. Some homeowners with low interest rates simply don’t do this. want sell their homes even if they can afford to buy a new one.

But more often than not, Sly said, ongoing inflationary pressures and high costs of living prevent many homeowners from moving even if they want to. Those who have interest rate 2.5%For example, their mortgage payments would skyrocket if they bought a comparable home today, and not just because of today’s rates. Housing prices have also grown by 47% since the beginning of 2020.

“House prices and inflation have really outpaced incomes,” Sly says.

IN CNET Money Poll45% of US adults said falling home prices would play a role in their decision to buy a home. In other words, buyers are sensitive to high prices, and houses aren’t flying off the shelves, he says. Vicki Barron, broker at Compass.

Moreover, prices find themselves at the crossroads of supply and demand: with a large number of buyers and a small number of available homes, prices are rising. Sly says many sellers feel they can raise prices even if the quality of the home doesn’t justify it. And sometimes they get away with it, especially if people are moving from expensive markets to cheaper cities and don’t mind paying.

Another major problem for the housing market? Sellers are usually also buyers. So even as the rate locking effect subsides, sellers listing homes for sale could increase competition and drive up prices.

Of course, the other side of the housing equation is new housing construction. Last year newly built houses are becoming an increasingly popular option for buyers who can afford it.

What do homeowners need to start selling?

Although Fed rate cut by 0.5% September is good news, but experts agree it won’t be enough to break the housing market.

“It’s very positive, but it won’t be a tsunami (of sellers) right now,” Barron says.

Fed Chairman Jerome Powell admitted this in his speech on September 18 after the rate cut. “As rates come down, people will start moving around more, and that’s probably already starting to happen,” he said.

But he warned that the bigger problem is that the country is not build enough new houses will increase overall supply, which will also reduce pressure on house prices. “This is not something the Fed can really fix,” Powell said.

Sly said mortgage rates will have to return to the 4% range so people can start selling and moving into new homes. Half of the US adult population CNET Money Poll said that a mortgage rate of 4% or lower would allow them to realistically consider purchasing a home or refinancing.

And a significant 29% of survey respondents said there is no mortgage rate that would allow them to realistically consider purchasing a home or refinancing. This highlights the problems associated with low stocks, high housing prices and inflation, regardless of interest rates.