The housing market has stalled, with sellers not finding buyers at current prices. There is a logjam, with sellers unwilling to lower prices after the steep run-up during the COVID pandemic. Buyers are being selective because not only do they have to pay a high price, but the financing is at levels above 6%.
Perhaps this is the market just finding an equilibrium price, but the real reason for any gridlock may be past mortgage interest rates. Right now, 50% of mortgages are below 4%. 20% is at rates below 3%, and 30% is between 3 and 3.99%. There has always been a gap between current mortgage rates and the rates that homeowners have locked in. Unfortunately, the gap may be larger than normal. In real terms, homeowners in the post-pandemic period have negative real mortgage rates. There can be a gap of over 500 bps between those low mortgages and current real rates.
Homeowners are not stupid. They know they got a great deal and do not want to move to a home that may not be significantly better and financed at a much higher rate. They will stay in their existing home or only leave if there is a significant gain from switching.
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