Homeowners Are Still Staying Put

Now that interest rates have ticked up again, it’s getting a little harder to sell homes. But it’s been even harder to find homes for more than a year, given the low inventory rates we’ve been seeing. 

Earlier this spring, Zillow was predicting that we’d see an inventory peak in early fall, but this was just a few days before the same researchers said inventory levels wouldn’t return to pre-pandemic levels until 2024. 

Some have suggested that the reason more owners aren’t listing their homes for sale is because they aren’t sure they can afford to buy a new home. 

Where this crisis hits home 

I should point out that this is not a crisis if you’re in the market for a McMansion (and have the funds for the down payment and don’t mind the interest rate). It really is centered on the smaller homes and, specifically, the starter homes for first-time buyers and baby boomers downsizing. 

In the past, first-time homebuyers would live in a starter home for a few years and then trade up to a larger home. But today, fewer owners of these homes want to trade in their 3% mortgage for a 5.95% home loan. So, they are staying put and it has disrupted the typical cycle. 

At the same time, demographics means Baby Boomers are at the right age to downsize, trading in their larger homes for smaller ones. If they can find one. Even at higher mortgage interest rates, they’ll have much lower home payments, which is what many of them are looking for. 

The opportunity for lenders 

It’s been said that in every adversity can be found the seed of opportunity. Sometimes they can be quite difficult to find, but in this case the smart money is on an increase in home improvement lending and home equity lending, at least until the situation changes and homeowners no longer feel locked into their current homes. 

In fact, we’re already seeing that. The new Mortgage Cadence LOS, MCP, excels at originating these loan products and so we’re seeing more lenders embrace it. When you can produce a new HELOC approval in about six seconds for an existing borrower relationship, why wouldn’t they? 

For a cyclical business, the mortgage industry has certainly seen its share of cycle breakers. We’re living through another one with this inventory shortage, but smart lenders will still be growing their businesses as we wait for this to change. 

By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence 

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