Tuesday, October 21, 2014
YOLO COUNTY NEWS
99 CENTS

Low mortgage rates put brakes on selling

By
From page A2 | July 11, 2014 |

WASHINGTON (AP) — 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.

————

By Christopher S. Rugaber, AP Economics Writer. Contact Chris Rugaber on Twitter at http://Twitter.com/ChrisRugaber

Comments

comments

The Associated Press

.

News

Suspected arson fires worry neighbors, firefighters

By Lauren Keene | From Page: A1 | Gallery

 
Winters homicide case enters jury-selection phase

By Lauren Keene | From Page: A1

 
So much more than a cute baby store

By Bob Schultz | From Page: A1 | Gallery

 
Fill the Boot for the hungry

By Enterprise staff | From Page: A2

 
Existing home sales rise in September

By The Associated Press | From Page: A2

For the record

By Enterprise staff | From Page: A2

 
Democrats love seeing minimum wage on the ballot

By The Associated Press | From Page: A2

Pets of the week

By Enterprise staff | From Page: A2 | Gallery

 
Tax tips offered for sole proprietors

By Enterprise staff | From Page: A3

Apply now for community mediation training

By Enterprise staff | From Page: A3

 
Paws for Thought: Pets for Vets: matches made in heaven

By Evelyn Dale | From Page: A3 | Gallery

‘Tokyo Kill’ author will visit bookstore

By Special to The Enterprise | From Page: A3

 
Sierra Club gathers for morning walks

By Special to The Enterprise | From Page: A3

DPNS has play group, preschool openings

By Enterprise staff | From Page: A3

 
Yolo Knitters Guild plans fall meetings

By Enterprise staff | From Page: A3

Local farm products found at hospital market

By Enterprise staff | From Page: A3

 
First-time home buyers get free advice

By Enterprise staff | From Page: A4

Psychiatric clinic hosts open house

By Enterprise staff | From Page: A4

 
Beer dinner set on Co-op patio

By Enterprise staff | From Page: A4

Walkin’ the Dawg through the park

By Enterprise staff | From Page: A4 | Gallery

 
 
Essay contest winners will be honored Tuesday

By Special to The Enterprise | From Page: A4

Volunteers sought to make veggie bags

By Enterprise staff | From Page: A4

 
Library hosts after-hours teen movie nights

By Enterprise staff | From Page: A4

Forum eyes impacts of raising the local minimum wage

By Special to The Enterprise | From Page: A5

 
NAMI-Yolo family support group meets Sunday

By Enterprise staff | From Page: A7

To save the birds, look to the fish

By Kat Kerlin | From Page: A7 | Gallery

 
Birding field trip planned Saturday

By Enterprise staff | From Page: A12 | Gallery

.

Forum

Ready to go, whatever happens

By Creators Syndicate | From Page: B5

 
Where there’s a will …

By Creators Syndicate | From Page: B5

These three are the best

By Letters to the Editor | From Page: A8

 
Sunder has bold vision

By Letters to the Editor | From Page: A8

Archer, Nolan are my picks

By Letters to the Editor | From Page: A8

 
She’s innovative, passionate

By Letters to the Editor | From Page: A8

An accidental fan becomes a baseball devotee

By Special to The Enterprise | From Page: A8

 
U.N. steps up to lead Ebola response

By Special to The Enterprise | From Page: A8

John Cole cartoon

By Debbie Davis | From Page: A8

 
.

Sports

UCD’s Wegener is the engine that drives the train

By Bruce Gallaudet | From Page: B1 | Gallery

 
Villegas wonderstrike powers Devils

By Evan Ream | From Page: B1 | Gallery

DHS golfers take the title

By Enterprise staff | From Page: B1

 
Devil defense regresses in football loss

By Thomas Oide | From Page: B1

Sports briefs: Top-end tennis talent helps DHS girls grab a win

By Enterprise staff | From Page: B2 | Gallery

 
Junior Blue Devils: Regular slate ends with 2 Davis teams playoff bound

By Enterprise staff | From Page: B3 | Gallery

After running the gridiron gauntlet, can UCD regroup?

By Bruce Gallaudet | From Page: B8 | Gallery

 
.

Features

.

Arts

 
Stories on Stage Davis presents tales by Lescroart, Montieth

By Special to The Enterprise | From Page: A11 | Gallery

 
.

Business

.

Obituaries

Peggy Belenis Swisher

By Special to The Enterprise | From Page: A4

 
.

Comics

Comics: Tuesday, October 21, 2014 (set 1)

By Creator | From Page: B5

 
Comics: Tuesday, October 21, 2014 (set 2)

By Creator | From Page: B7