They’re not listing their homes because they’re not moving out because they’re not buying a home to move into because they don’t want to give up their 3% gift from God.
By Wolf Richter for WOLF STREET.
The exact numbers are hard to nail down, but we can guesstimate from the figures we have that the entire housing market, both buyers and sellers, has shrunk this year by about 20% to 25% compared to pre-pandemic years.
Meaning 20% to 25% less demand and sales and 20% to 25% less inventory and new listings, with prices down a tad year-over-year, showing that the market is roughly balanced at this smaller size because buyers and sellers have vanished in equal number.
And we know who they are: the homeowners in 3%-mortgage jail that now cannot buy, and therefore cannot sell.
The 3% mortgages that a lot of homeowners now have after the huge refinancing boom during the pandemic prevent those people from buying a new home because they might have to finance it at about 7%, which would increase the monthly payment on the same size mortgage by 50% or more.
So these people aren’t buying. They aren’t even looking. They have left the market as buyers, and so there may be 20% to 25% fewer buyers.
At the same time, and in equal number, these people, who cannot buy a new home, therefore cannot sell their current home because they continue to live in it, and so they’re not putting their home on the market, and inventory shrinks by the same number as buyers have left. Less inventory and fewer buyers in equal amount.
These homeowners with 3% mortgages don’t want to, or cannot, upsize or downsize, or move to a different location, move closer to the kids or parents, or whatever – unless they want to give up their sacred 3% mortgage that now increasingly looks like a gift from God.
And for Realtors, the 3% mortgage – as much as they loved it at the time – has now turned into a gift from hell, because the real estate industry is making commissions coming and going: One, when these homeowners sell their old home, and two, when they buy a new home.
Each household that is now prevented from changing homes because they’re locked in by this 3% gift from God subtracts two transactions from the market – one when they buy a new home, and the other when they sell their old home. And Realtors are losing both of those deals.
The fact that Realtors are losing both of those deals is why the industry is so upset about these homeowners that refuse to sell – and it consistently blames them for the low inventory.
But the industry fails to state the other half of this reality, though they all know it: That these homeowners who refuse to sell have also vanished as buyers, and therefore this portion of demand has dropped in equal measure with inventories.
This is happening with a fairly large group of homeowners: They have left the market as both sellers and buyers at the same time and in equal number.
Which explains in part why sales volume has plunged so far because those potential buyers with 3% mortgages have left the market. And it explains in part why inventories have dropped because the same people that cannot buy aren’t putting their homes on the market.
That’s the big reason why we have this strange combination of plunging sales along with a national median price that has dropped year-over-year for the first time since the Housing Bust, with homes spending an increasing number of days on the market, amid growing but still tight inventory (all data here from the National Association of Realtors).
To set the scene: The national median price has been down slightly year-over-year for the fifth month in a row, a sign that the market is at a deadlock because mortgage-jailed potential buyers and potential sellers are the same people, and they’re not buying and they’re not selling.
Seasonally, the median prices released by the National Association of Realtors generally increase in the first half of the year, peak in June, and decline in the second half of the year (though part of the seasonality was upended during the pandemic). That’s just the normal seasonality of the housing market. Yesterday, we reported June’s median price of single-family houses; and based on seasonality, prices can be expected to go down for the rest of the year.
But the year-over-year comparison eliminates this seasonality. On a year-over-year basis, the median price of single-family houses dipped 1.2% in June, the fifth month in a row of year-over-year declines.
Second: Sales of single-family houses in June were down by 22% from June 2019 and by 23% from 2018. Since October last year, the declines in the current month from the same months in 2019 and 2018 ranged from -15% to -28%, because the mortgage-jailed households aren’t buying.
Third: New listings in June (396,100) were down by 23% from June 2019 and by 24% from June 2018, according to data from realtor.com, in part because the mortgage-jailed are not listing their homes because they’re not moving out because they’re not buying a new home to move into because they don’t want the payment of a 7% mortgage:
These declines in the 20% to 25% range keep cropping up across the demand and supply measures, compared to pre-pandemic times, indicating that a substantial portion of the normal buyers-sellers have vanished as buyers and as sellers because they got their 3% gift from God, and they’re not going to give it up, and so they’re not buying a new home and so they’re not selling their old home, and the whole market, buyers and sellers, has shrunk by their number. And that may be the new normal for years to come.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.