Nine out of ten mortgages in America carry an interest rate below 5%, which is the official level at which most new 30-year fixed rate mortgages are currently taken out.
Why is it important: Homes are affordable – if you already own one. According to Fannie Mae’s most recent National Housing Survey, 92% of homeowners say their current home is affordable. Even more impressively, 91% of low-income homeowners say the same, up from just 79% at the end of 2017.
- However, if these owners moved, they would have to pay a lot more interest.
The big picture: If you have a much cheaper mortgage than you would have to pay if you moved, that’s a big financial incentive to stay put. The result is that, thanks to the dynamics of supply and demand, higher mortgage rates are less likely to translate into lower house prices.
Between the lines: When mortgage rates rise, it reduces the supply of housing in the market. Lower supply means higher prices, especially in areas where many buyers bid cash.
The bottom line: Americans keep their cars for much longer than they normally would because replacing them is very expensive. Something similar is also starting to happen in real estate.