Friday, March 6, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Downside of low US mortgage rates? Less selling

By
From page B6 | July 12, 2014 |

WASHINGTON — Would-be home sellers across the country are grappling with a once-in-a-lifetime problem: They have mortgage rates so absurdly low it would hurt them financially to sell.

Doing so would mean giving up an irresistible rate in exchange for a new mortgage carrying a rate up to a percentage point higher. Their monthly payments would be larger even for a house of the same price. That’s discouraging some people from selling, thereby limiting the supply of available homes and contributing to slower home sales.

It’s a significant shift from the way the U.S. housing market has worked for the past 30 years. For most of that time, whenever a homeowner decided to trade up to a better home, mortgage rates usually were lower than the last time they had bought. That helped make a new purchase seem more attractive.

But that is changing. The average rate on a 30-year mortgage fell below 4 percent in late 2011 and reached a record low level of 3.3 percent in November 2012. It didn’t top 4 percent again until mid-2013. Homeowners took advantage of the lower rates and a refinancing boom ensued.

More than one-third of homes with a mortgage now have rates below 4 percent, real estate data provider CoreLogic estimates. Yet mortgage rates now average 4.2 percent. That is still low by historical standards but up about three-quarters of a point from a year and a half ago. And should mortgage rates rise later this year and next, as many economists expect, even more homeowners will be affected.

As a result, many homeowners with low rates are staying put. Others are moving and buying new homes, but keeping their old ones and renting them. Both choices mean that fewer homes are listed for sale, which drives up prices. Higher prices and limited selection have put the brakes on a housing recovery that began in 2012.

And slower home sales, in turn, drag down economic growth. Fewer sales mean lower commissions for real estate agents. Sales of furniture, appliances and garden supplies also take a hit.

Mark Fleming, chief economist at CoreLogic, estimates that as many as 3.6 million homeowners are unlikely to sell this year because they would have to give up a lower rate.

“They got the deal of the century,” says Glenn Kelman, CEO of real estate brokerage Redfin. “I don’t think in 100 years anyone will be lending money at 3.5 percent. How do you walk away from a deal like that?”

You’d think Ryan Carson, an attorney in Seattle, would be ready to sell. He and his wife have one young child and they are expecting twins. They are going to hire a live-in nanny, which means there will be five people living in their four-bedroom house.

“I could probably use the extra space, honestly,” he said. And he would make money off the sale, since his home’s market value is above what he paid.

But Carson, 39, has a 30-year, 3.85 percent mortgage rate, so he isn’t going anywhere. He refinanced into the lower rate last summer, reducing his monthly payment to $2,200 from $2,600.

“I have no interest right now in selling,” he said. He and his wife plan to remodel instead.

A shortage of homes for sale has plagued the housing market since late 2012. The number of available homes last year was the equivalent of just 4.9 months’ worth of sales, according to the National Association of Realtors. That’s far below the typical figure of 6 months. Inventory has recovered somewhat this year, partly because the spring buying season is underway, but it was still equal to just 5.6 months of supply in May.

Meanwhile, sales of existing homes have fallen 5 percent in the past year. Yet prices rose 8.8 percent nationwide during the same period, according to CoreLogic, partly because of the limited supply.

What economists call “rate lock-in” is one of several reasons so few houses are for sale. Another factor is that almost 40 percent of homeowners still don’t have enough equity to enable them to sell. Some are “underwater,” with a mortgage higher than the home’s value. Others may have so little equity that they can’t afford to pay off the sales costs and put a down payment on their next property.

“We are in a uniquely difficult period for matching buyers and sellers,” says Stan Humphries, chief economist at real estate data provider Zillow.

Home prices are expected to keep rising in the coming months, though at a slower pace than the double-digit gains that occurred earlier this year. Higher prices should lower the number of underwater homes and enable more people to sell.

But as the number of underwater homes falls, several studies suggest the impact could be offset by higher mortgage rates, which would increase the number of homeowners facing interest rate “lock-in.” Most economists expect mortgage rates to rise later this year as the Federal Reserve ends its bond-purchase program, which is intended to keep borrowing rates low.

“Mortgage rate lock-in is going to be a major challenge for the housing market going forward,” Humphries said. “It is going to be a constant tug of war between buyers on one side … and mortgage rate lock-in on the other side.”

Humphries forecasts that rates will reach 5 percent by the first three months of next year. That would mean those buying or refinancing now, at the current rates of about 4.1 percent, might never want to sell either.

A 2011 study by the Federal Reserve Bank of New York concluded that for every $1,000 increase in a homeowner’s annual mortgage payment, the likelihood that homeowner would sell fell as much as 16 percent.

Paul Bernard, a recruiter in New York City, says the issue has begun to interfere with some of his clients’ willingness to move for a new job. In one recent case, an employee at a large technology firm decided to postpone a job-related move to San Francisco partly because it would have forced him to take out a mortgage at a half-percentage point higher than his current one.

“The job market in some cases is less mobile than it used to be,” he said.

Low rates have combined with rising rents nationwide to make renting out a home, rather than selling, more attractive. A rental index compiled by Zillow has risen 19 percent in the past year.

Santiago Garcia, 30, and his wife both work from home and recently felt their 2-bedroom condominium was getting cramped. The couple was also thinking of starting a family. So in February they bought a new home in Oxford, Massachusetts, about 45 minutes from Boston.

But the mortgage rate on their condo is just 2.95 percent, so they decided to keep it and rent it out. The mortgage is so low because its rate is adjustable after 10 years.

Their monthly mortgage payment is only $540. But they are renting it out for $1,200 a month.

“The cash flow was so much, it was an easy decision,” Garcia said.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

 
Random thoughts on getting older by Annabelle . . . and Susan

By Susan Winlow | From Page: B1 | Gallery

Work progresses on freeway interchange project

By Kevin W. Green | From Page: A1 | Gallery

 
Solano College grad becomes Marvel superhero

By Amy Maginnis-Honey | From Page: B1

Caltrans announces planned I-80 closures

By Kevin W. Green | From Page: A1

 
French guitarist brings world music to The Palms

By Amy Maginnis-Honey | From Page: B1

Bay Area Stage readies ‘Mockingbird’ production

By Amy Maginnis-Honey | From Page: B1

 
Let’s take a 2nd look at 1st cars

By Tony Wade | From Page: A2

 
Bike to School Day poster contest begins

By Kevin W. Green | From Page: A3

 
Youth talent, scholarship awards dinner set

By Ryan McCarthy | From Page: A4

Free 8-week Journey Through Grief class set

By Ryan McCarthy | From Page: A4

 
Audubon Society to hold talk on blackbird decline

By Ian Thompson | From Page: A4

 
Fairfield police log: March 4, 2015

By Susan Hiland | From Page: A12

Suisun City police log: March 4, 2015

By Susan Hiland | From Page: A12

 
.

US / World

SF hospital performs rare chain kidney swap

By The Associated Press | From Page: A1

 
El niño might not be enough to help Ca drought

By The Associated Press | From Page: A1

 
App developers take a swing at playgrounds

By The Associated Press | From Page: A4

Device in ‘Superbug’ outbreak not approved by FDA

By The Associated Press | From Page: A5

 
States on edge about the future of health insurance markets

By The Associated Press | From Page: A5

Freight train carrying crude oil derails in Illinois

By The Associated Press | From Page: A5

 
Supreme Court allows for compassionate release

By The Associated Press | From Page: A5

Off-duty officer accidentally shoots relative

By The Associated Press | From Page: A5, 2 Comments

 
Student protests block access to campus

By The Associated Press | From Page: A5

GOP legislator enters race for Boxer’s seat

By The Associated Press | From Page: A5

 
Japanese tsunami debris washing ashore

By The Associated Press | From Page: A5

Air Force veteran who saved orphans in Korean War dies at 97

By The Associated Press | From Page: A6 | Gallery

 
Plane skids off LaGuardia runway, slams into fence near bay

By The Associated Press | From Page: A7 | Gallery

Father tells jury about boy’s death at Boston Marathon

By The Associated Press | From Page: A7

 
Hillary Clinton email trove under review for release

By The Associated Press | From Page: A7

Homeowners group denies playhouse for cancer-stricken girl

By The Associated Press | From Page: A7

 
Report: Suicides by girls and young women continue to climb

By The Associated Press | From Page: A7

Jurors in Jodi Arias case: We were 11-1 for death penalty

By The Associated Press | From Page: A7

 
Experts: Ferguson must move quickly to rebuild public trust

By The Associated Press | From Page: A7

Attack on US envoy part of S.Korea’s violent protest history

By The Associated Press | From Page: A10 | Gallery

 
Last Ebola patient is released in Liberia

By The Associated Press | From Page: A10

Floods kill 42 people in Tanzania, authorities say

By The Associated Press | From Page: A10

 
Death toll in east Ukraine mine blast reaches 33

By The Associated Press | From Page: A10

Syria says it killed military leader of al-Qaida group

By The Associated Press | From Page: A10

 
Iraq says Islamic State militants ‘bulldozed’ ancient site

By The Associated Press | From Page: A10

Companies form coalition to conserve during drought

By The Associated Press | From Page: A12

 
.

Living

Today in History: March 6, 2015

By The Associated Press | From Page: A2

 
Community Calendar: March 6, 2015

By Susan Hiland | From Page: A2

Horoscopes: March 6, 2015

By Holiday Mathis | From Page: A9

 
Should I tell my coworker that her romantic emails are being read at work?

By Kathy Mitchell and Marcy Sugar | From Page: A9

.

Entertainment

Week in preview March 6-12, 2015

By Amy Maginnis-Honey | From Page: B1

 
Announcer Craig Sager returns from leukemia to NBA sideline

By The Associated Press | From Page: B2

Comedy Central’s ‘Too Many Stars’ means plenty of laughs

By The Associated Press | From Page: B2 | Gallery

 
Jaime Camil shines as telenovela star on ‘Jane the Virgin’

By The Associated Press | From Page: B2

Shania Twain to launch final tour in June

By The Associated Press | From Page: B2

 
Elizabeth McCracken wins $20,000 short story prize

By The Associated Press | From Page: B2

Dying wish comes true: Dutch woman with ALS sees Rembrandts

By The Associated Press | From Page: B2

 
Review: ‘Second Best’ Marigold Hotel lives up to its title

By The Associated Press | From Page: B3 | Gallery

Review: ‘Unfinished Business’ should never have started

By The Associated Press | From Page: B3

 
Entertainment calendar: March 6, 2015

By Amy Maginnis-Honey | From Page: B4

 
TVGrid

By Daily Republic | From Page: B6

.

Sports

Jones-Drew retires, Woodley released by Raiders

By The Associated Press | From Page: B7

 
Veteran defensive tackle Dockett joins 49ers on 2-year deal

By The Associated Press | From Page: B7

 
Maddon makes debut with Cubs in spring tie with A’s

By The Associated Press | From Page: B7

Hunter Pence breaks arm in Giants’ 8-6 win over Cubs

By The Associated Press | From Page: B7

 
 
Ashley, McConnell lead No. 5 Arizona to 99-60 rout of Cal

By The Associated Press | From Page: B8

Holmes opens 4-shot PGA lead at Blue Monster

By The Associated Press | From Page: B8

 
Local Report: Labit pitches SCC to win over Folsom Lake

By Daily Republic staff | From Page: B8

Prosecutors: No criminal charge for NASCAR driver Kurt Busch

By The Associated Press | From Page: B8

 
As NFLPA election looms, Smith hopes to keep ‘boring job’

By The Associated Press | From Page: B8

This date in sports history for March 6, 2015

By The Associated Press | From Page: B9

 
.

Business

Toyota rolls out first mass-market cars to run on hydrogen fuel cells

By The Washington Post | From Page: C1 | Gallery

 
Can Etsy keep its folksy brand and make shareholders money?

By The Associated Press | From Page: B11

Applications for US jobless aid inch up to a 10-month high

By The Associated Press | From Page: B11

 
A robust US job market is expected to keep delivering

By The Associated Press | From Page: B11

Largest US banks all pass latest round of Fed ‘stress tests’

By The Associated Press | From Page: B11

 
Ringling Bros. Circus to give up elephant acts in 3 years

By The Associated Press | From Page: B11 | Gallery

Google providing car insurance quotes in latest expansion

By The Associated Press | From Page: B11

 
.

Obituaries

Thelma A. Roche

By Nancy Green | From Page: A4

 
Michele Jarvis

By Nancy Green | From Page: A4

Robert Charles Thierry

By Susan Hiland | From Page: A4

 
.

Comics

Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

 
Sally Forth

By Daily Republic Syndicated Content | From Page: A8

Baldo

By Daily Republic Syndicated Content | From Page: A8

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

 
Peanuts

By Daily Republic Syndicated Content | From Page: A8

Blondie

By Daily Republic Syndicated Content | From Page: A8

 
Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

Zits

By Daily Republic Syndicated Content | From Page: A8

 
Baby Blues

By Daily Republic Syndicated Content | From Page: A8

Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

 
Garfield

By Daily Republic Syndicated Content | From Page: A8

B.C.

By Daily Republic Syndicated Content | From Page: A8

 
Dilbert

By Daily Republic Syndicated Content | From Page: A8

Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

 
Pickles

By Daily Republic Syndicated Content | From Page: A8

Crossword

By Daily Republic Syndicated Content | From Page: A9

 
Sudoku

By Daily Republic Syndicated Content | From Page: A9

Cryptoquote

By Daily Republic Syndicated Content | From Page: A9

 
Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

Bridge

By Daily Republic Syndicated Content | From Page: A9