According to the report, mortgage rates hit record lows at the peak of the COVID-19 pandemic. New buyers scrambled to buy properties, and existing homeowners refinanced at lower rates, providing both groups with lower interest rates and lower monthly payments.
As a result, more than 25 percent of all outstanding mortgages originated since 1995 were opened or refinanced at lower rates during 2020 and 2021. When mortgage rates started to inch ahead again in 2022, both homebuying and refinancing dropped, leaving many homeowners “locked in” to their lower rates.
“Simply put, homeowners holding on to the pandemic-era rates now find themselves unwilling or unable to sell, because doing so would require taking out a new mortgage at a much higher rate, significantly increasing their financing costs,” the report states.
Today, more than 80 percent of current mortgages have rates lower than 6 percent and more than 32 percent of outstanding loans have rates as low as 3 percent and 4 percent. Among the latter group, almost one in four mortgages in the West has a rate lower than 3 percent, compared with about 20 percent nationwide.
Some of America’s priciest regions are now feeling the pinch of the “locked-in” effect, with San Jose, California, grabbing the title of the country’s most “locked-in” metropolitan area.
Realtor.com data show that the average San Jose property owner seeking to sell a current home and purchase a new comparable one could expect his monthly mortgage payments to escalate by about 180 percent, from about $2,604 to $7,281.
Los Angeles homeowners face similar problems for selling and buying in this market, with an estimated 176 percent increase in monthly mortgage costs.
Portland, Maine, garnered the nation’s third spot for the largest gap between existing and new mortgage payments, with a 154 percent predicted increase. Oxnard, California, and Bridgeport, Connecticut, rounded out the top five list with expected increased monthly payments of 152 percent and 149 percent, respectively.
“Because homes in these markets are already expensive, buyers typically rely on larger mortgage balances, which amplifies the impact of rising rates,“ Realtor.com senior economic research analyst Hannah Jones said in the report. ”Even modest rate increases translate into steep jumps in monthly payments, making it far more difficult for existing homeowners to move within the same market or for new buyers to enter.”
Conversely, home sellers in the Pittsburgh, Baltimore, and Buffalo, New York, metros would pay about 32 percent more each month if they were to sell and purchase another property.
The report recommends tax deductions, rebates, and other incentives, such as allowing home sellers to retain their existing interest rate when purchasing another property.
