As mortgage rates continue their climb over 6%, the common thought is home ownership is getting too expensive for some buyers. As a result, demand will drop, and prices will flatten or fall. It’s hard to argue with that logic. The median price for a home in Orleans Parish went up over 18% in the last two years. The jump in mortgage rates has happened quickly. That combination will undoubtedly take a meaningful number of buyers out of the market.
However, homeowners are in a unique position that could result in a corresponding drop in our supply of homes. As many as 80% of homeowners have mortgages with rates far below what they are now. That’s a powerful incentive for them to stay put and hold off selling their homes until the buying environment improves and mortgage rates come back down again. Nobody knows when that might be, but all indications are that it might take a little while.
Inventory has been rebounding nicely from record-low levels, but we’re still well short of having a “normal” number of homes on the market. If higher mortgage rates end up keeping homes from hitting the market – something stats geeks call a “mortgage rate lockdown” – there’s a chance prices will continue climbing.
We’re headed into the 4th quarter, when the number of new listings takes a seasonal plunge, regardless. I’m be following the stats to see if that plunge is deeper than usual, and if the typical rebound early next year isn’t as strong. That would be an indication that sellers are going to wait, and we’ll be stuck with low inventory into 2023.