Despite naysayers like Logan Mohtashami insisting that mortgage rate lockdowns are NOT a thing, it seems abundantly obvious to us in the industry that they are most definitely “a thing.”
Sellers are reluctant to sell if they have to buy a new home with a mortgage in a 4% to 5% higher rate environment. Hence, sellers are “locked down” by their low-rate mortgages, and this is the reason why inventory remains so tight.
Interestingly, there are even polls to show that this same factor is preventing divorces, as spouses don’t want to be forced to refinance to buy out the other spouse when rates are 4% higher than their current mortgage.
Two Points About Rate Lockdowns
There are two interesting aspects of these lockdowns that I want to address in today’s blog.
- The lockdown logjam is bound to burst! This is a point Scott Galloway made in his recent “No Mercy/No Malice” essay/podcast. There are a huge number of sellers who desperately want to sell for many reasons, and who have been holding out because of mortgage rates – but can hold out no longer. As a result, we will likely see an onslaught of sellers in 2024 no matter what happens to rates.
- The logjam bursting/onslaught of inventory will not collapse the market. If rates fall significantly this year (and I still think they will), the resulting surge in inventory will not cause housing prices to collapse. And this is why: All of those sellers will have to buy another house – unless they all go live in tents 😊 (Credit to Barry Habib for this reminder). Hence, the increase in supply will be met with a corresponding increase in demand from those same sellers, not to mention the increase in demand from all of the other buyers who will be lured back into the market by the lower rates.
