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Ultra-low mortgage rates that homeowners locked in during the early pandemic are the “handcuffs” that are holding back the home market — moreso even than the decline in demand for homes, Compass CEO Robert Reffkin said in a new interview.
Homebuyers have mostly accepted mortgage rates above 6 percent as the new normal, Reffkin told Bloomberg Markets earlier this week, according to a video uploaded Wednesday on the program’s website.
But homeowners, on the other hand, have been reluctant to move, contributing greatly to a reduction in new listings and home transactions.
“There’s just not enough inventory,” Reffkin said. “And that’s because 30 percent of homeowners are locked in to mortgage rates of 3 percent or below, and 70 percent of homeowners are locked in to mortgage rates of 4 percent or below. And if you have a 3 percent mortgage rate, you consider that a financial asset, and don’t want to lose it.”
A day after Reffkin’s comments aired, the real estate company Redfin released a new report confirming that new home listings fell in late May and early June to their lowest level on record for that time of year — and 25 percent lower than the same time last year.
The number of homes on the market also reached their lowest levels for early June, and were down 5 percent year-over-year, Redfin reported.
This constrained inventory environment has been particularly hard-felt in the more affordable rung of home prices — a tier that affects middle-income families most of all, according to a separate report Thursday from Realtor.com.
The market fell short by almost 320,000 lower-price-tier homes at the end of April, the report found. That group includes homes priced below $256,000 nationwide, which are considered generally affordable for households earning up to $75,000.
“A two-fold approach is needed to help with both low affordability and limited housing supply,” Nadia Evangelou, National Association of Realtors senior economist and director of real estate research, said in the report. “It’s not just about increasing supply. We must boost the number of homes at the price range that most people can afford to buy.”
In his TV appearance, Reffkin said he doesn’t expect that to happen until mortgage rates drop back down near the 5 percent range.
“There will be a time when a flood of inventory comes back to the market,” Reffkin said. “I believe that will be when mortgage rates are closer to 5 [or] 5.5 percent, because if you have a 4 percent mortgage, you don’t want to roll that into 7 [percent] — but you’ll roll it into 5 [percent].”
In the meantime, the market is still churning along — just at transaction levels that are far below what the industry is used to in normal times.
Reffkin credits this activity largely to the normal churn of life. People may not always want to move, but sometimes they have to in response to a major life event.
“People get married,” he said. “They have a kid. They have a new job. They have to return to an office. I don’t wish this on anybody, but there are deaths and divorces. So that’s keeping a natural rate of inventory — although low — but enough to keep the industry moving.”