Low interest rates on existing loans lock in wealthy homeowners. But some argue that they can’t buy at today’s high prices, whether or not interest rates come down, as Intel’s research data suggests.
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If they own a home and can afford to buy another one at the same time, many will be comfortable listing their current residence.
They are also one of the most coveted potential customer groups in the real estate industry.
People who already own a home but say their financial situation is not good enough to buy at current prices and mortgage rates were surveyed in early January as part of Inman Dig Insights’ latest consumer survey. They accounted for 32% of all homeowners. Additionally, 11% of homeowners said they were unsure if their financial standing was strong enough to buy in today’s market.
But when Intel polled this group in a broader study of 3,000 U.S. consumers, it uncovered some surprising findings. In fact, these homeowners are less likely than wealthier consumers to be lured off the sidelines by lower interest rates.
A significant proportion of these homeowners, who tend to be older but have not yet retired, may have bought the home when they could afford it and then paid off the loan over the next few years.
So why aren’t they in a position to buy, and what needs to change before going public?
Intel sought to answer these questions in this week’s report.
left in place
In this report, Intel considers homeowners to be “stuck” if they say they are not financially equipped to purchase a home in today’s market, or are unsure if they are. .
But what exactly is a stranded homeowner?
One obvious factor is their low income.
Fifty-eight percent of stuck homeowners said their household income was less than $75,000 a year, compared to 37% who said they could afford to buy a home. The proportion of stranded homeowners with annual incomes of less than $50,000 was more than twice that of more economically advantaged groups.
But from here, this low-income group split in some surprising directions.
Stuck homeowners were more likely to be older, with 42% saying they were at least 50 years old. Only 31% of the financially prepared group said the same. Stuck homeowners were also more likely to be white and less likely to report being black.
This contingent may be a bit old, but I don’t consider it completely retired, mainly due to the constraints of the research itself.
The survey only included adults between the ages of 24 and 65 who reported working full-time or part-time, which excludes many individuals who consider themselves retired.
But for a variety of reasons, stranded homeowners may report that their financial outlook has worsened over the past year.
Only 20% of stranded homeowners reported that their household finances were “financially better off” in January than they were a year ago. A further 37% said their financial situation had changed little during that time, and the remaining 43% said their financial situation had worsened. By comparison, homeowners who said they could buy if they wanted were three times as likely to say their financial situation had improved in the past year, and one-third as likely to say their financial situation was worse than it was a year ago. It was.
For both groups, homeownership was once an achievable prospect. For homeowners who can no longer afford to buy a home, many of those changes are recent. Some in that group may have gone from full employment to underemployment, or may have experienced a decline in income due to rising prices.
And while their plight is affected by today’s high mortgage rates, interest rate movements alone cannot solve the problem either.
more than the price
One thing this group had in common was that they were fairly predictable. Homeowners who still have outstanding loans on their properties are likely locking in ultra-cheap interest rates.
27% of homeowners stuck with a mortgage report that their interest rate is less than 3.5%, compared to 19% of homeowners who can afford to buy a home. . This means that stranded homeowners are more likely to report that their loan is a 30-year fixed-rate mortgage and more likely to report that they have a 15-year fixed-rate mortgage, which typically has lower interest rates. This is despite the fact that it is low.
But that’s far from the whole picture. Many stuck homeowners are not “locked in” to ultra-low rates in any meaningful way.
Thirty-six percent of stranded homeowners said they owned their home free and clear without a mortgage, compared to just 28 percent of owners in a better position.
result? As a group, these homeowners are not as “stuck” by today’s high interest rates as other groups. In fact, they appear to be less responsive to lower interest rates than homeowners, whose decision not to buy is a more selective choice.
43% of stuck home buyers who said they were unlikely to buy a home in the next 12 months said lower mortgage rates would not cause them to change their mind. Only 32 percent of well-positioned owners willing to buy said the same.
It’s important to note that these stranded homeowners are now less likely to say they’re happy with where they live and therefore unlikely to buy.
Sixty-five percent of homeowners who are unlikely to buy in the next 12 months say it’s because they’re happy with where they live. This is only slightly less than the 70 percent of hesitant buyers who feel they can afford it. Instead, stuck homeowners are more likely than wealthier homeowners to say their home is too expensive (40% to 25%), don’t have enough money for a down payment (18% to 8%), or can’t afford it. There was a high possibility. You either qualify because of your credit (9% to 3%) or you don’t qualify because of your income (9% to 2%).
To be clear, rate-locking effects are real. It seems to particularly impact homeowners who are already in a sound financial position to buy, but feel that now is not the wisest time to switch from their existing lower interest rate to a higher rate.
But for many other homeowners, the conditions for purchasing their current home are no longer in place. And it will take longer than interest rates to turn around.
About Inman-Dig Insights Consumer Research
The Inman-Dig Insights consumer survey was conducted from January 7th to January 8th to assess Americans’ opinions and behaviors regarding homebuying.
The study sampled a diverse group of 3,000 full-time or part-time employed American adults between the ages of 24 and 65. Participants were selected to create a broadly representative breakdown by age, gender, and region.
Statistical rigor was maintained throughout the study, and the results should be largely representative of attitudes held by U.S. adults with full-time or part-time jobs. Both Inman and Dig Insights are majority-owned by Toronto-based Bellinger Capital.
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