Cheap rates on existing loans are keeping well-off homeowners in their homes. However, some potential buyers are unable to enter the market due to the high prices, regardless of fluctuations in rates, according to Intel survey data.
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These homeowners, who already own a property, may be willing to sell if they could afford to purchase another one simultaneously.
They are a highly desirable group for the real estate industry.
- 32 percent of all homeowners polled in early January as part of the latest Inman-Dig Insights consumer survey were people who already own a home but feel they are not financially ready to buy at current prices and mortgage rates.
- Another 11 percent of homeowners were uncertain about their financial capabilities to buy in the current market.
Surprisingly, when Intel surveyed this group in a broader survey of 3,000 U.S. consumers, it was discovered that these homeowners are less likely to be motivated by decreasing rates compared to more financially stable consumers.
Many of these homeowners, who are typically older but not retired, purchased their homes when they could afford it and may have even paid off their mortgage since then.
The report aims to address why they are unable to buy and what needs to change for them to consider listing their property.
Stuck in a Rut
For this report, Intel defines a homeowner as “stuck” if they believe they are not financially prepared to purchase a home in today’s market or are unsure.
What characterizes a homeowner in this situation?
One clear indicator is their lower incomes.
- 58 percent of stranded homeowners reported a household income below $75,000 a year, in comparison to 37 percent of homeowners who feel financially prepared to buy.
- The percentage of stranded homeowners earning less than $50,000 a year was more than double that of the financially stable group.
Additionally, this lower-income group exhibited some unexpected trends.
- Stranded homeowners were more likely to be older, with 42 percent indicating they were at least 50 years old. Only 31 percent of the financially prepared group fell into this age bracket.
- Stranded homeowners were also more likely to be white and less likely to identify as Black.
While this group may skew older, they do not consider themselves fully retired due to study restrictions.
Since the survey only reaches adults between the ages of 24 and 65 with full- or part-time jobs, retired individuals are excluded.
Nevertheless, stranded homeowners are more likely to report a decline in their financial situation over the past year.
- Only 20 percent of stranded homeowners stated their household was “better off financially” in January compared to a year ago. 37 percent reported little change, while 43 percent felt their financial status had worsened.
- In contrast, homeowners who felt financially capable of buying were three times more likely to say their financial situation had improved over the past year and one-third as likely to indicate a decline.
For both groups, homeownership was once within reach. However, for those who can no longer afford to buy, the shift in circumstances has been recent. Some may have transitioned from full-time employment to part-time or experienced a drop in income combined with rising prices.
While their challenges are influenced by current high mortgage rates, resolving them will require more than just rate adjustments.
Beyond Interest Rates
A common factor among these homeowners is the likelihood of having secured a very low rate on their existing loans.
- 27 percent of stranded homeowners with a mortgage reported a rate below 3.5 percent, while only 19 percent of financially prepared homeowners had rates in this range.
- Interestingly, stranded homeowners were more likely to have a 30-year, fixed-rate mortgage and less likely to have a 15-year, fixed-rate mortgage, which typically offers lower rates.
However, this does not provide a full picture. Many stranded homeowners are actually mortgage-free.
- 36 percent of stranded homeowners stated they owned their home outright without a mortgage, compared to only 28 percent of financially stable homeowners.
As a result, this group is not more financially constrained by current high rates than others. They seem to be less responsive to rate reductions than homeowners who have the choice to delay buying.
- 43 percent of stranded homeowners who were unlikely to purchase a home in the next 12 months indicated that no decrease in mortgage rates would change their decision.
- Only 32 percent of financially stable owners leaning against purchasing had the same perspective.
It is noteworthy that these stranded homeowners were not more inclined to stay put because they are content with their current living situation.
- 65 percent of stranded homeowners hesitant to buy in the next 12 months attributed it to their satisfaction with their current residence, slightly below the 70 percent of financially capable hesitant buyers.
- Instead, stranded homeowners were more likely than their financially stable counterparts to highlight reasons such as high home prices (40 percent compared to 25 percent), insufficient funds for a down payment (18 percent compared to 8 percent), credit qualification issues (9 percent compared to 3 percent), or income limitations (9 percent compared to 2 percent).
While the impact of fixed rates is evident, it seems to have a greater influence on homeowners who are financially capable but cautious about exchanging their low existing rate for a higher one. For many other homeowners, the circumstances that enabled their initial home purchase are no longer applicable, and overcoming these barriers will require more than just a decline in rates.
About the Inman-Dig Insights Consumer Survey
The Inman-Dig Insights consumer survey was conducted from Jan. 7 through Jan. 8 to gather insights and behaviors of Americans regarding home buying.
The survey involved 3,000 American adults aged 24 to 65 with either full-time or part-time employment. The participants were chosen to achieve a representative distribution by age, gender, and region.
The study maintained statistical rigor, producing results that largely reflect the attitudes of employed U.S. adults. Both Inman and Dig Insights are majority-owned by Toronto-based Beringer Capital.
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