New listings are rising fastest in metros where more homes
are owned outright, without a mortgage
- Pittsburgh, Buffalo and Cleveland have the highest share of homeowners
free from mortgage rate lock-in among the 50 largest U.S.
metros.
- Seventeen percent of baby boomer homeowners are free from rate
lock — the generation least affected – compared to just six percent
of millennial owners.
- Gen Z, whose members generally have less equity in their homes,
will likely stay put for a while.
SEATTLE, April 8,
2024 /PRNewswire/ -- New research from
Zillow® shows older homeowners and those in less
expensive metros are the least likely to be discouraged from moving
by today's higher mortgage rates – with Boomer homeowners in
Pittsburgh leading the way. About
10.8 million current homeowners nationwide, or 13%, should be
immune to the effects of high interest rates. Markets with more
homeowners free from rate lock have seen more homes listed for
sale, giving buyers more choices during a prolonged shortage of
inventory.
Many homeowners have a mortgage rate below the prevailing
rate or an income too low to comfortably afford a mortgage at
today's higher rates, and are therefore "rate locked" — financially
incentivized to keep their current home and low rate.
However, census data shows that 10.8 million homeowners are both
mortgage-free and make enough income to afford monthly payments on
a typical home where they live, if they bought it today. These
homeowners are likely to be older and live in more affordable
markets. Nearly 38% of Boomer homeowners in Pittsburgh are free from rate lock, making
them the least locked-in of all generations of homeowners among the
50 largest U.S. metros.
"The so-called mortgage rate lock-in effect has seriously
curtailed both home sales and inventory over the past two years.
Homeowners are more free to sell in less expensive areas — bringing
more resale inventory into the market and facilitating sales," said
Orphe Divounguy, Zillow senior economist. "Massive appreciation has
left homeowners with record levels of equity, and many are
financially able to move on, even given today's higher rates."
Rate lock has shown signs of easing in recent months, but the
flow of listings is still significantly below pre-pandemic rates,
and total inventory is in an even bigger hole, down roughly 37%
compared to 2019.
Mortgage rates' drastic shift is behind many homeowners'
reticence to list. Rates reached record lows in 2020 and 2021,
doubled in 2022, hit 23-year highs in 2023, and have remained
elevated ever since. New research from the Federal Housing Finance
Agency shows that mortgage rate lock-in prevented roughly 1.33
million sales between the second quarter of 2022 and 2023
year-end.
Owners in more affordable markets face lower barriers to entry
for their next home, generally have less mortgage debt, and can
more easily move on — with or without taking on a new mortgage. The
share of owners free of rate lock is highest in relatively
affordable markets in the Upper Midwest — Pittsburgh, Buffalo and Cleveland — the latter two of which are among
Zillow's Hottest Markets for 2024.
It's harder to give up a low rate and more expensive to move in
the least affordable markets, so there tends to be fewer new
listings of existing homes coming on the market in these areas.
Zillow data shows a clear positive correlation between the share of
homeowners without a mortgage and the change in new listings since
early 2022, when rates rose. Metros with a higher share of
locked-in homeowners saw larger decreases in new
listings.
Baby boomers are least affected by rate lock, while millennials
and Gen Zers are significantly more so. Older homeowners tend to
have more equity built up in their home and boomers have the
highest incomes, on average, among current generations. Higher
wealth and higher incomes make a cash purchase or higher down
payment for their next home (in their market) more doable, and
mortgage payments less onerous. Nationwide, 17% of baby boomer
homeowners are free from the effects of rate lock, compared to just
six percent of millennial homeowners and 12% percent of Gen X
homeowners.
Selling options for homeowners
Homeowners have
benefited from the massive rise in home values, now up 41%
over the course of the pandemic. Those ready to cash out and
move on can explore different selling
options upfront and decide the best course of action for
them, whether selling with a Zillow Premier Agent or
getting a cash offer from Opendoor.
The Silent
Generation and boomers are least likely to be affected by changes
In mortgage rates
|
|
Generation
|
Total
Homeowners
|
Mortgage-Free
Homeowners
|
Mortgage-Free
and
Mortgage-Ready
Homeowners
|
Percentage Free
of Rate Lock-In
|
Silent
Gen
|
8,780,278
|
6,685,928
|
1,249,895
|
14 %
|
Boomers
|
32,061,195
|
17,430,503
|
5,305,625
|
17 %
|
Gen X
|
24,784,630
|
6,884,541
|
3,018,890
|
12 %
|
Millennials
|
17,627,307
|
3,202,861
|
1,127,771
|
6 %
|
Gen Z
|
1,273,088
|
332,842
|
48,434
|
4 %
|
Metros where
homeowners are least likely to be affected by changes In mortgage
rates
|
|
MSA
|
Total
Homeowners
|
Mortgage-Free
Homeowners
|
Mortgage-Free
and
Mortgage-Ready
Homeowners
|
Percentage Free
of Rate Lock-In
|
Pittsburgh,
PA
|
699,477
|
341,063
|
188,486
|
27 %
|
Buffalo,
NY
|
332,770
|
160,048
|
76,078
|
23 %
|
Cleveland,
OH
|
561,134
|
241,587
|
123,707
|
22 %
|
Oklahoma City,
OK
|
344,916
|
143,428
|
70,763
|
21 %
|
Detroit,
MI
|
1,227,113
|
524,087
|
239,813
|
20 %
|
Metros where
homeowners are most likely to be affected by changes in mortgage
rates
|
|
MSA
|
Total
Homeowners
|
Mortgage-Free
Homeowners
|
Mortgage-Free
and Mortgage-Ready
Homeowners
|
Percentage Free
of Rate Lock-In
|
San Diego,
CA
|
641,052
|
201,114
|
18,315
|
3 %
|
San Jose,
CA
|
357,221
|
125,670
|
10,848
|
3 %
|
Los Angeles,
CA
|
2,161,234
|
731,526
|
67,755
|
3 %
|
San Francisco,
CA
|
914,825
|
320,039
|
30,978
|
3 %
|
Seattle,
WA
|
964,005
|
298,755
|
44,584
|
5 %
|
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SOURCE Zillow