The median amount of time homeowners live in their home rose to about eight and a half years in 2016, the longest tenure since Moody's Analytics and First American Financial Corporation began tracking such data in 2000. Mortgage rates may be the reason owners refuse to move, which is keeping inventory stubbornly low. And economists predict homeowners will continue to lengthen their stay in a home through the next decade,
The New York Times reports.
Many homeowners refinanced their mortgages in recent years when interest rates were at historic lows—around 3.25 percent for a 30-year fixed-rate mortgage. Now that interest rates have increased, mortgage payments would jump significantly for homeowners, even if they find a similar home for the same price. For example, a $500,000 30-year fixed-rate mortgage for $500,000 with an interest rate of 5.5 percent would increase a monthly payment from $700 to $3,600, including estimated taxes and fees.
However, mortgage rates are not quite that high yet. The rate for the 30-year fixed-rate mortgage averaged 4.05 percent last week, according to Freddie Mac. But many economists expect mortgage rates to inch close to 5 percent by the end of the year.
Once mortgage rates rise to 5 or 5.5 percent, many homeowners will stay put due to the "lock-in effect," economists say. It may be most noticeable in cities with a high rate of job growth and higher-income neighborhoods, according to a 2014 study by the Institute for Housing Studies at DePaul University. Many of the homeowners who refinanced when rates were at record lows tended to have better credit, higher incomes, and homes in pricier neighborhoods, the study showed.
"We are coming out of a deep, dark hole called the housing bust, but we are a long way from normal—and we may never get back to normal—if 'normal' was the average person staying in their home for four or five years," said Mark Zandi, chief economist of Moody's Analytics. "We're at eight-plus [years] now, and even under the best of circumstances, maybe we get to six."
Source: “Real Estate’s New Normal: Homeowners Staying Put,” The New York Times (May 14, 2017)