Wednesday, September 17, 2014
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

David Grant doctor’s mission continues

By Ian Thompson | From Page: A1, 4 Comments | Gallery

 
 
Chamber PAC draws candidates to Jelly Belly

By Jess Sullivan | From Page: A2, 1 Comment | Gallery

 
Damaged dog gets going-away party after getting healthy

By Susan Hiland | From Page: A3, 1 Comment | Gallery

 
 
Suisun City slaying suspect case moves forward

By Amy Maginnis-Honey | From Page: A4

Touro University to host Zombie Run/Walk

By Amy Maginnis-Honey | From Page: A4

 
Land trust organizes Rockville Trails Preserve hike

By Barry Eberling | From Page: A4

 
Police enlist help to find armed bandit

By Jess Sullivan | From Page: A4, 13 Comments | Gallery

Chamber to host Suisun City candidates night

By Ian Thompson | From Page: A5

 
 
 
Coastal Cleanup Day targets local waterways

By Barry Eberling | From Page: A6 | Gallery

 
Judge questions juror in Calkins case

By Barry Eberling | From Page: A6

Drama reigns supreme with week’s film debuts

By Amy Maginnis-Honey | From Page: A7

 
Anti-drug programs face funding shortfall

By Ryan McCarthy | From Page: A8, 1 Comment

 
Fairfield police log: Sept. 13, 2014

By Susan Hiland | From Page: A12

Fairfield police log: Sept. 14, 2014

By Susan Hiland | From Page: A12

 
Fairfield police log: Sept. 15, 2014

By Susan Hiland | From Page: A12, 1 Comment

Suisun City police log: Sept. 15, 2014

By Susan Hiland | From Page: A12, 1 Comment

 
Suisun City police log: Sept. 14, 2014

By Susan Hiland | From Page: A12

Suisun City police log: Sept. 13, 2014

By Susan Hiland | From Page: A12

 
Weather for Sept. 17, 2014

By Daily Republic | From Page: B14

.

US / World

Woman in wildfire’s path lost almost everything

By The Associated Press | From Page: A1 | Gallery

 
Lumber town takes stock after wind-driven wildfire

By The Associated Press | From Page: A1 | Gallery

PG&E officials leave posts over improper emails

By The Associated Press | From Page: A8 | Gallery

 
Things to know about California groundwater law

By The Associated Press | From Page: A9

California drivers must give bikes 3-foot buffer

By The Associated Press | From Page: A9, 23 Comments | Gallery

 
San Francisco trying shaming for quake safety

By The Associated Press | From Page: A9

Governor signs first California groundwater rules

By The Associated Press | From Page: A9

 
School bus driver killed during safety drill

By The Associated Press | From Page: A10, 1 Comment

Hunt on for survivalist charged in trooper killing

By The Associated Press | From Page: A10, 1 Comment

 
Robbery suspects tried to make off with $15,600

By The Associated Press | From Page: A10

Top general: US ground troops possible in Iraq

By The Associated Press | From Page: A10 | Gallery

 
Obama: Ebola outbreak a threat to global security

By The Associated Press | From Page: A10

UN: Nearly $1 billion needed now to stop Ebola

By The Associated Press | From Page: A10

 
CDC study: Americans’ bellies are expanding fast

By The Associated Press | From Page: A10, 4 Comments | Gallery

Blacks, Hispanics have doubts about media accuracy

By The Associated Press | From Page: A10, 2 Comments

 
Ukraine lawmakers ratify landmark deal with Europe

By The Associated Press | From Page: A13, 1 Comment | Gallery

Iraq parliament rejects interior, defense nominees

By The Associated Press | From Page: A13, 1 Comment

 
Afghan suicide bomber kills 3 foreign troops

By The Associated Press | From Page: A13

Mexico airlifts tourists after Hurricane Odile

By The Associated Press | From Page: A13

 
.

Opinion

 
Column focus on campaign signs misplaced

By Letter to the Editor | From Page: A11, 13 Comments

 
Time for utility execs to start worrying

By Thomas Elias | From Page: A11

Editorial cartoons for Sept. 17, 2014

By Daily Republic Syndicated Content | From Page: A11

 
.

Living

Community Calendar: Sept. 17, 2014

By Susan Hiland | From Page: A2

 
Today in History: Sept. 17, 2014

By The Associated Press | From Page: A2

My selfish husband neglects and cheats on me. What’s next?

By Kathy Mitchell and Marcy Sugar | From Page: B5

 
Horoscopes: Sept. 17, 2014

By Holiday Mathis | From Page: B5

All the flavors of fall in one twice-baked package

By The Associated Press | From Page: B6

 
Leave them feeling full with nutritious chia seeds

By The Associated Press | From Page: B6, 1 Comment

A late summer Southern classic – tomato pie

By Elizabeth Karmel | From Page: B6

 
.

Entertainment

CBS: Rihanna out of NFL telecast

By The Associated Press | From Page: A7

 
Leonardo DiCaprio named UN Messenger of Peace

By The Associated Press | From Page: A7

.

Sports

Armijo volleyball team falls to Vintage

By Daily Republic staff | From Page: B1

 
Peavy, Posey help Giants gain ground in NL West

By The Associated Press | From Page: B1 | Gallery

Prep volleyball preview: Big goals for city teams

By Paul Farmer | From Page: B1 | Gallery

 
Raiders games are like live reruns

By Tony Wade | From Page: B1, 2 Comments

Kazmir, sloppy Athletics lose 6-3 to Rangers

By The Associated Press | From Page: B1 | Gallery

 
DA: Josh Gordon gets probation in DWI case in NC

By The Associated Press | From Page: B2

Anheuser-Busch, McDonald’s voice NFL disapproval

By The Associated Press | From Page: B2

 
Criticism mounting for Vikings, Adrian Peterson

By The Associated Press | From Page: B2

McIlroy wins PGA player of the year award

By The Associated Press | From Page: B2

 
Grand jury to weigh case of NASCAR’s Tony Stewart

By The Associated Press | From Page: B2 | Gallery

Sacramento Kings to retire Stojakovic’s jersey

By The Associated Press | From Page: B2

 
Broncos, Seahawks top AP Pro32 before rematch

By The Associated Press | From Page: B2 | Gallery

Union appeals Ray Rice’s indefinite suspension by NFL

By The Associated Press | From Page: B2

 
Jaguars sign Rodriguez grad Jensen off practice squad

By Staff and wire reports | From Page: B2

Short stay at NASCAR’s party for AJ and Almirola

By The Associated Press | From Page: B2

 
Hindsight: a Ryder Cup tradition, like no other

By The Associated Press | From Page: B2

Senator ties NFL tax status to Redskins name

By The Associated Press | From Page: B2

 
49ers defense looks to bounce back from tough day

By The Associated Press | From Page: B9 | Gallery

.

Business

NASA picks Boeing and SpaceX to ferry astronauts

By The Associated Press | From Page: B7 | Gallery

 
Web filter lifts block on gay sites

By The Associated Press | From Page: B7

Alibaba risk: China’s rise leaves out investors

By The Associated Press | From Page: B8

 
Corinthian Colleges sued for predatory lending

By The Associated Press | From Page: B8

UPS expects to hire up to 95,000 seasonal workers

By The Associated Press | From Page: B8

 
US CEOs less optimistic about hiring, spending

By The Associated Press | From Page: B8

.

Obituaries

Minnie Watkins Dixon

By Nancy Green | From Page: A4

 
Margaret King

By Susan Hiland | From Page: A4

.

Comics

Sally Forth

By Daily Republic Syndicated Content | From Page: B4

 
Garfield

By Daily Republic Syndicated Content | From Page: B4

Wizard of Id

By Daily Republic Syndicated Content | From Page: B4

 
Pickles

By Daily Republic Syndicated Content | From Page: B4

Blondie

By Daily Republic Syndicated Content | From Page: B4

 
Zits

By Daily Republic Syndicated Content | From Page: B4

Baby Blues

By Daily Republic Syndicated Content | From Page: B4

 
B.C.

By Daily Republic Syndicated Content | From Page: B4

Get Fuzzy

By Daily Republic Syndicated Content | From Page: B4

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: B4

Peanuts

By Daily Republic Syndicated Content | From Page: B4

 
Baldo

By Daily Republic Syndicated Content | From Page: B4

Frank and Ernest

By Daily Republic Syndicated Content | From Page: B4

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: B4

Rose is Rose

By Daily Republic Syndicated Content | From Page: B4

 
Dilbert

By Daily Republic Syndicated Content | From Page: B4

Bridge

By Daily Republic Syndicated Content | From Page: B5

 
Word Sleuth

By Daily Republic Syndicated Content | From Page: B5

Sudoku

By Daily Republic Syndicated Content | From Page: B5

 
Crossword

By Daily Republic Syndicated Content | From Page: B5

Cryptoquote

By Daily Republic Syndicated Content | From Page: B5