Homeowners are staying in their homes longer and longer, according to First American Chief Economist Mark Fleming. These long-term owners are contributing to the short supply problem and driving the low home sale trend. As Fleming says, “It’s hard to buy what’s not for sale.”
The increased tenure in homes may be due to a number of factors, according to Fleming, notably mortgage rates, supply, credit standards, foreclosure rates, and home equity. Many homeowners are unwilling to sell and lose their 3.5 percent mortgage, as the current rate of 4.6 percent is considerably less attractive.
As for supply, as these “homebodies” worsen the inventory problem, they are also impacted by it.
“As the supply of homes for sale increases, the risk of not being able to find something to buy falls and homeowners become more confident in the decision to sell,” says Fleming. “Today’s significant lack of supply is preventing homeowners from selling and driving tenure length up.”
Despite the highest levels of tappable equity in history, homeowners are still hesitant to sell due to the above factors. Tight credit standards are also holding many in their current homes, as many homeowners may be less likely to receive mortgages for a new home due to these historically tight standards.
Fleming states that we are in an “unprecedented” homebody era, with increasing mortgage rates, low supply, low rates of foreclosure and tight credit increasing homeowner tenure to the highest level in 18 years, and there is currently no end in sight.
“While it is unlikely the influences that are currently driving tenure higher will change in the near term, more than half of all existing-homes are owned by baby boomers and the silent generation, who will eventually age out of homeownership,” said Fleming. “When that occurs, the problem may not be a lack of supply, but the exact opposite.”
Find Fleming’s blog post on the First American Economic Center Blog here.