Friday, July 11, 2014

Locked In Low Mortgage Rates Cause Housing Problems

Proof that for every good thing, there is something bad that comes from it.  This July 11, 2014 Fox News article discusses part of what is driving up housing prices (finally) after many years of decline or little change:
Would-be home sellers across the country are grappling with a once-in-a-lifetime problem: They have mortgage rates so absurdly low it would hurt them financially to sell.
Doing so would mean giving up an irresistible rate in exchange for a new mortgage carrying a rate up to a percentage point higher. Their monthly payments would be larger even for a house of the same price. That's discouraging some people from selling, thereby limiting the supply of available homes and contributing to slower home sales.
As the article explains, eventually, demand for existing houses will drive up prices enough that some people will bite the bullet on higher mortgage rates because they will have enough equity in their current house to justify the sale.  In the meantime, there are worse problems to have.  The downside of all this is reduced job mobility.  Lots of people who might consider relocating for a new job have strong incentives to stay where they are.

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