New Zillow survey results reveal homeowners with a mortgage rate above 5% are nearly twice (38%) as willing to sell their home than those paying a rate below 5% (21%).
According to the Zillow data team, the higher-rate owners face no or relatively little financial disincentive to trading their current mortgage for a new one. In fact, of homeowners who reported plans to sell, 47% of homeowners paying a mortgage above 5% already have their house listed “for sale” compared with 20% of those with rates below.
“The split between those reporting a 4.00-4.99% and 5.00-5.99% rate reveals the greatest divide in homeowner intent to move: 41% of homeowners at 5.00-5.99% consider selling, while only 26% of those at 4.00-4.99% say the same,” says Treva Tam, author at Zillow Research. “That said, while the most striking divergence for locked movers in June 2023 was at a 5% mortgage rate, it has varied between 4% to 5% in the past four quarters. This oscillation could indicate that the true inflection point—the rate at which homeowners are less likely to move—is generally between 4% and 5%.”
Unfortunately, the survey also found around 90% of mortgage holders reported having a rate less than 6%, about 80% of mortgage holders reported having a rate less than 5%, and almost a third reported a rate less than 3%.
With current mortgage rates hovering around 7%, a vast majority of homeowners would need to finance a new home at a higher rate than the rate they currently hold, adding hundreds of dollars a month to their mortgage payment and creating an incentive to hold on to their home rather than move.
"We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future," says Orphe Divounguy, senior economist at Zillow Home Loans. "That means many homeowners will move only for major life events, like a new baby or retirement. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices."
Looking to the future, there are reasons to be optimistic though. Nearly one-quarter of homeowners are considering selling their home in the next three years or currently have their home listed for sale (23%), which is significantly higher than the 15% of homeowners who said the same one year ago.