There were a few good things to come out of the pandemicremote work for one, to-go cocktails, and historically low mortgage rates. And the homeowners who locked in mortgage rates around 2% or 3% may just be the big financial winners of the pandemic, as rates are currently hovering around 7%. As of Tuesdays reading the average 30-year fixed rate came in at 6.75% and the average 15-year fixed rate at 6.17%.
As Fortune has previously reported, the low mortgage rates of the past are keeping some homeowners from selling and also triggering a wave of accidental landlords, because they dont want to sell and lose their low rates. For some, theyre simply feeling lucky to have locked in lower rates for, what they say are, their forever homes. Either way, theres pressure on both sides of the market, as 99% of borrowers have a mortgage rate below the current market rate, according to Goldman Sachs.
High interest rates are constricting both buying, obviously because people cant afford these higher mortgage rates, and selling because homeowners want to hold on to their low interest rates, Redfins chief economist Daryl Fairweather previously told Fortune. There are fewer buyers and there are also fewer sellers, but the decline in buyers is whats dragging down prices and the combination is whats contributing to the decline in sales.
Annie Tsai, chief operating officer at Interact, told Fortune that she purchased her home in San Mateo, California for around $1.7 million, with a 30-year fixed rate at 2.125% in 2021. Tsai said she took on a $1 million mortgage after putting down around $700,000. Her monthly payment is around $4,000 (not including taxes).
I dont really see us selling anytime soon, Tsai told Fortune. It would be ideal to be able to keep the house for the long term since the rate is so attractive. Tsai added later that shes not particularly attracted to the landlord lifestyle, so she probably wouldnt choose to rent it out. I feel lucky, Tsai said, adding later that its solely unaffordable at this point and theres too strong a need for housing.
If Tsai had borrowed her $1 million at, say, a 7% mortgage rate, she wouldve seen a monthly mortgage payment of over $6,653. Thats 66% higher than her current payment.
Sue Smith, who is self-employed and in the investment industry, told Fortune that she refinanced her home in Nyack, New York in April 2022, after applying to refinance in the summer of 2021.
She called it perfect timing because rates started to climb shortly after, and she was able to lock in a 15-year fixed rate at 2.25%. Before refinancing, Smith had a 30-year fixed rate below 4%, so she isnt saving on her monthly mortgage payments, but shell pay it off sooner. Not including taxes and insurance, her monthly payment is $5,895 and some change, on her $900,000 mortgage, Smith said. When asked if shed ever sell her home, Smith said, laughing, no were prisoners.
We will never find this rate again, Smith told Fortune. If we were to sell this house and move into a house at half the cost, we would still be paying more on our mortgagetwo and a half to three times more than what were paying now.
Again, if we were to calculate Smiths monthly payment but at a 6% rate (since its 15-year fixed), itd be $7,595. Still, Smith hopes to move at some point, as she gets closer to retirement. That being said, shed likely keep her property and rent it out because it doesnt make sense to her to give up the low mortgage rate.
Youll never get this interest rate again, were not giving that up, Smith told Fortune.
Peter Gatto, a retired certified public accountant, told Fortune that he locked in a 15-year fixed rate at 1.875% in the summer of 2021 for his home in the San Francisco Bay Area, after applying to refinance in early 2021 because he figured rates were going to go up.
I knew Id be retiring that year, 2021, with 22 years left on the old mortgage, and I saw the interest rates dipped below 2% on 15 years, Gatto said. So even though my payments went up, my remaining years went down by seven years, and Im gonna save like $75,000 in interest because Im doing it for seven years less and at a lower interest rate.
Gatto said its unlikely that hell ever sell his home. But he does hope to eventually live abroad, when his circumstances allow it, and at that point hed probably rent out his home instead of selling. If the rate wasnt so low or if was having trouble making his payments, hed probably sell it, Gatto said.
Keller Williams Realty real estate agent based in Lafayette, Louisiana, Stephen Hundley, told Fortune that he refinanced his home at the end of 2020 for a 30-year fixed rate at 2.625%. Hundley said his monthly payment, including taxes and insurance, dropped from $2,300 to $2,100. When Hundley bought his home, he wasnt planning on moving but getting this low of a rate definitely solidified that decision, Hundley said.
Were not going to be moving anytime soon, Hundley told Fortune. I mean, I would say were definitely going to be here for at least the next 20 years. And if Hundley did have to move, hed make it a rental because hed be able to cash flow it pretty well with a 2.625% interest rate.
But as a real estate agent, Hundley knows that the people whove refinanced or purchased homes in the last few years are holding on tight to their low rates. That being said, the so-called lock-in effect is creating a market with really low inventory, Hundley said.
Hundley said he was speaking with a client of his recently, and the client wanted to move-up and purchase a four bedroom and sell his smaller three bedroom home. But after locking in a 3% rate, Hundleys client said he couldnt justify selling his home and buying another at a six to seven percent rate and paying around twice as much each month. Hes just kind of stuck, Hundley said, referring to his client.
It was so abnormal, Hundley said, referring to the Pandemic Housing Boom. And were seeing the effects of it now, but our inventory is going to stay low for a very long time because people are just reluctant to sell these [homes] with [low] interest rates.
