Homeowners Feel “Stuck” Despite Slight Dip in Interest Rates

The 'Lock-In Effect': How Elevated Mortgage Rates Are Impacting Homeowners' Life Decisions



The news is everywhere–mortgage rates are finally dropping. Though they are looking much better than they did at the peak of 2023 when they were over 8%, these rates are still a far cry from where they were just a few years ago. When you also take inflation and higher house prices into account, homeowners who wish to relocate are stuck in a financial dilemma.

A recent survey from West Shore Home reveals that 58% of homeowners feel “stuck” in their homes due to high interest rates. They are finding it difficult to let go of the low mortgage rates they secured in 2020 to 2022, which were as low as 2.65% at one point. Even though they want to move, whether it’s for more space or an updated house, many people simply can’t afford to take on a new mortgage rate in the current market. The result? A housing market where choices are limited, and life decisions are put on hold.

The Interest Rate Gap

The low mortgage rates during the first two years of the coronavirus pandemic fueled a productive period of time where Americans rushed to buy homes and lock in these low rates. However, inflation quickly took hold and the Federal Reserve raised interest rates–causing the housing market to hit a wall. By late 2023, mortgage rates had spiked about 8%, leaving a huge disparity between those who managed to secure those low rates and those attempting to buy a home today.

Even with the recent decreases, mortgage rates in 2024 are still hovering around 7%--still far above what many homeowners are currently paying. While it may not seem like a huge financial impact, it adds up quickly. A homeowner who secured a $500,000 mortgage at a 2.75% interest rate in 2021 would pay about $2,041 a month. Fast forward to today, that same house at a 7% rate would pay roughly $3,326.

That discrepancy of more than $1,200 per month is enough to prevent many homeowners from making a move, especially if it’s more financially advantageous to make home renovations so that their current home can meet their new needs.

Life on Hold

West Shore Home’s survey shows us how high mortgage rates are not only affecting housing decisions–they are altering long-term life plans as well. 37% of respondents said they turned down job offers because they couldn’t afford to sell their house and move to a new location. Nearly another 30% admitted they had delayed having a child (or more children) due to their current homes not having enough space, and they didn’t have the financial means to buy a larger property.

This data highlights the phenomenon that experts call the “lock-in effect.” When homeowners are reluctant (or unable) to sell their homes because they are locked into low mortgage rates, the housing market inevitably suffers from a reduced supply. This creates a cycle that restricts market activity and keeps the housing prices in many areas high, thus making it difficult for prospective buyers to find homes that fit their needs.

The Renovation Boom

Since moving is no longer an option for many, we are seeing an uptick in renovation projects. Homeowners are investing in upgrades to add space, update features, and fit their lifestyles better overall. According to the survey, nearly 60% of homeowners have plans to renovate, with the majority focusing on kitchen upgrades, new flooring, and bathroom remodels.

For these homeowners, financing renovations is often more feasible than selling and buying a new home. Home equity loans and lines of credit typically come with lower interest rates than new mortgages, and these upgrades can help drive up the value of their home, which in turn provides more potential for a return on investment.

Long-Term Impacts

High interest rates aren’t just affecting homeowners in their current day-to-day lives, they are also influencing longer term plans. For example, many older homeowners may have originally planned to downgrade, but are finding it’s more financially advantageous to stay in their current homes and simply make adjustments to suit their needs as they age.

Homeowners are also holding onto their properties longer in general. According to data from Redfin, the typical homeowner stays in their house for more than 13 years–up from an average of 10 years in 2010. And as more people stay put, the supply of homes for sale continues to dwindle, further exacerbating the affordability issues that first-time buyers are facing.

A Waiting Game

Despite rates trending downward, homeowners are still waiting for more favorable market conditions before making any big moves. In the meantime, they are hunkering down, making renovations, and hoping that the rates will drop a lot lower in the coming years.

However, even if rates do decrease, the long-term impact of today’s high rates will more than likely be felt for quite a while. The decisions homeowners are making now–whether to stay, renovate, or put off major life changes–are shaping the future of the housing industry as we speak.

Media Information:

Name: Kirsten Page

Position: Director of Public Relations

Email: [email protected]

Company Name: West Shore Home

Website: westshorehome.com

Country: United States

Disclosure

This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.


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