Home Ownership and the Interest Rate “Lock-in Effect”

Rising Rates Deter Home Buying & Selling, Right?  Not Necessarily (and, who says they’re rising??)

“Now that interest rates have begun to turn up from their historic lows, the housing market may face a problem called “the lock-in” effect, where homeowners are reluctant to move, since moving might entail taking out a new mortgage at a higher rate.”

“Real Estate’s New Normal: Homeowners Staying Put”; The New York Times (5/14/17)

There’s just one catch (OK — two) with The New York Times’ theory that rising interest rates are to blame for more homeowners opting to stay put, exacerbating already tight housing inventory:  rates aren’t rising.

In fact, they’re flat to down so far this year.

After briefly touching 4.5% last December, 30-year mortgage rates have drifted back down close to 4% — not dramatically higher than the all-time low touched more than six years ago.

Sales Catalyst

Yup, that’s right:  notwithstanding all the political gyrations the last six months (Trump, North Korean nuclear tests, Syrian crisis, Russian political meddling, Comey firing, Trump again), mortgage interest rates in 2017 have been remarkably stable.

Flaw #2 in The NYT’s theory:  the specter of imminently rising rates often spurs real estate sales, at least in the short run.

That’s because Buyers want to lock in lower rates while they still can . . .



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