The silver tsunami, or the expected surge of homes on the market as baby boomers downsize, may be slowed by golden handcuffs.
The New York Times reported Monday that at the end of last year there was a gap of more than 3% between rates on new home loans and the average fixed rate on existing mortgages.
According to the data, about 70% of homeowners had mortgage rates around 4%. Timeswhich is significantly lower than the current market rate of approximately 7%.
Related: A ‘silver tsunami’ is about to rock the property market, says analyst who accurately predicted the 2008 financial crisis
The gap between current and average rates incentivizes homeowners to hold on to their properties, locking them in with “golden handcuffs” or a financial reason to stay.
The effect is clear: The Federal Housing Finance Agency found that the mortgage rate freeze stalled 1.33 million home sales from mid-2022 to the end of 2023, reducing home sales by 57%. The supply shortage, combined with population growth outpacing the pace of construction, has led to a shortage of 7.2 million homes, real estate agents estimate.
Boomers, who were expected to start downsizing their living spaces as early as this year and flooding the real estate market with homes in a silver tsunami, are instead keeping their larger residences.
“We just don’t want to pay that much interest,” finance professor Bob Wood, 66, told CNBC. Wood and his wife are in their 10th year of a 15-year fixed mortgage at 3.125% on their 5,000-square-foot home in Alabama.
Another couple, both over the age of 70 and empty nesters, told CNN Business they are “staying” in their 3,000-square-foot, 5-bedroom California home.
Related: Barbara Corcoran says ‘this is the best time’ to buy as home prices will soon skyrocket
A survey conducted by a real estate agent last year showed that 82% of homeowners who wanted to sell their existing home and buy a new one felt forced to keep their home due to the difference in mortgage rates. More than half said they would wait for rates to drop before selling.
“One silver lining to emerge from the pandemic has been historically low mortgage rates – and many people have taken advantage of this opportunity to purchase their first home, upgrade to a more expensive home, or refinance the home they were in,” said the estate agent chief economist. Danielle Hale in the report. “Unfortunately, this presents a bit of a problem, as homeowners who have locked in a 30-year fixed rate in the 2-3% range don’t necessarily want to give it up in exchange for a rate in the 6-3%. 7% range.”
Stuck homeowners were also less willing to relocate for work, with Bloomberg highlighting last week that hiring managers based in the Midwest were turning down jobs in the South with salaries of $250,000, in part to maintain their mortgages at low interest.
Related: Barbara Corcoran Talks NAR Settlement: ‘It’s a Scary Time for Realtors’