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Low-Rate Mortgages Form ‘Golden Handcuffs’ Around Homeowners | Entrepreneur

The silver tsunami, or the expected increase of homes available on the market as baby boomers downsize, may very well be slowed by golden handcuffs.

The New York Times reported on Monday that by the top of last yr, there was greater than a 3% gap between rates on latest home loans and the common fixed rate on existing mortgages.

About 70% of house owners had mortgage rates of around 4%, in line with The Times, which is significantly lower than the present market rate of about 7%.

Related: A ‘Silver Tsunami’ Is About to Upend the Housing Market, Says Analyst Who Accurately Predicted the 2008 Financial Crisis

The gap between the present rate and the common incentivizes homeowners to carry on to their properties, locking them in with “golden handcuffs” or a financial reason to remain.

The effect is noticeable: The Federal Housing Finance Agency found that the mortgage rate lock-in stopped 1.33 million home sales from happening from mid-2022 to the top of 2023, reducing home sales by 57%. The shortage of supply, combined with population growth outpacing construction, has led to a 7.2 million home shortage, per Realtor estimates.

Boomers, who were expected to begin downsizing their living spaces as early as this yr and flood the housing market with homes in a silver tsunami, are as an alternative holding onto their larger residences.

“We just don’t desire to pay that much in interest,” finance professor Bob Wood, 66, told CNBC. Wood and his wife are within the tenth yr of a 3.125% 15-year fixed mortgage on their 5,000-square-foot Alabama home.

Another couple, each over 70 years of age and empty nesters, told CNN Business that they are “staying put” of their 3,000 square-foot, 5-bedroom California home.

Related: Barbara Corcoran Says ‘Now Is the Best Time’ to Buy as Home Prices Will Soon Go ‘Through the Roof

A Realtor survey from last yr showed that 82% of house owners who desired to sell their existing home and buy a latest one felt locked into keeping their homes due to the difference in mortgage rates. More than half said they were waiting for rates to come back down before selling.

“One positive aspect that got here out of the pandemic was historically low mortgage rates – and plenty of people took advantage of this chance to purchase their first home, upgrade to a costlier home, or refinance the house they were in,” said Realtor Chief Economist Danielle Hale within the report. “Unfortunately, this comes with a little bit of a catch-22, as homeowners who locked in a 30-year fixed rate within the 2-3% range don’t necessarily want to present that up in exchange for a rate within the 6-7% range.”

The locked-in homeowners were also less willing to relocate for work, with Bloomberg highlighting last week that manager recruits based within the Midwest were turning down jobs within the South with salaries of $250,000, partially to carry on to their low-interest mortgages.

Related: Barbara Corcoran Sounds Off on NAR Settlement: ‘It’s a Scary Time for Real Estate Agents’

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