Stuck in the suburbs: Pandemic migration creates housing crisis | Homes

One out of every five homeowners who moved within the last three years now regret their decision.

Many Americans relocated either permanently or temporarily because of the COVID-19 pandemic. College dorms closed for students, communities were perceived as unsafe, or people found they could no longer afford their housing. At a time when stay-at-home orders were the norm, many realized their homes were not as comfortable when travel options were limited.

In addition, mortgage and interest rates have continued to climb, plunging home affordability to its lowest level in decades. The combination of low inventory and higher retail prices made homeowners hesitant to sell and buyers hesitant to buy. Rates for a fixed, 30-year mortgage jumped to 7%, the highest in over 20 years.

Buyer’s Remorse

Buyer’s remorse was one of the top five regrets expressed by participants in a recent All Star Home study. 22% claimed buyer’s remorse, and 23% felt they paid too much for their home. More than 30% of those interviewed had a mortgage rate of 6%, while 14% had a mortgage rate of 7%.

A spokesman for Freddie Mac, a giant in the mortgage industry, says, “A year ago, the average rate was just over 5%. and two years ago it was less than 3%. What this means for a home buyer is the same monthly payment that would have bought a $400,000 house last summer will only stretch to a $325,000 house today.”

According to data from Realtor.com, nearly 82% of homeowners felt locked in by their existing low-rate mortgage. Chief Economist Danielle Hale said, “Homeowners who locked in a 30-year fixed rate in the 2-3% range don’t necessarily want to give that up in exchange for a rate in the 6-7% range.”

A Question of Supply and Demand

The supply of homes for sale in the U.S. reached a record low of 1.6 months in January 2022, according to the National Association of Realtors (NAR). NAR reported that the market is short about 320,000 listings, with an average retail price of $256,000.

Due to the inventory squeeze created by these higher price points, middle-class buyers face the most competition when shopping for homes. As a result, these buyers often require outside help to find a home in an affordable price range. An estimated 50% of American home buyers have considered moving to another state in order to find more budget-friendly housing options.

Hale says, “Ongoing high housing costs and the scarcity of available homes continue to present budget challenges for many prospective buyers, and it is likely keeping some buyers in the rental market or on the sidelines and delaying their purchase until conditions improve.”

It’s All About The Mortgage Rate

A recent report from Zillow found that homeowners were nearly twice as willing to sell their home if their mortgage rate is 5% or higher, but 80% of mortgage holders have a rate below 5%. From 1978 to 1981, mortgage rates similarly doubled from 9% to more than 18%, leading to more homeowners staying in their current homes.

As a result, many homeowners who would otherwise choose to downsize, leave their starter home, or move to a new location are opting to remain in place, keeping those homes out of the inventory pool. A reduced supply creates a more competitive market and higher prices. 79% of Americans surveyed believed buying a home is more difficult in 2023 than in previous years.

Is There An Upside To NOT Selling A Home?

While the focus of many post-pandemic house sellers seems to be on striking while the mortgage rate and demand irons are hot, there is also wisdom in the decision to resist putting a house on the market. The financial, physical, and mental tolls relocation can take on the seller’s well-being is a major consideration.

Events such as the COVID-19 pandemic have demonstrated that a nomadic lifestyle or a constant search for housing upgrades is not necessarily a positive thing, regardless of the short-term financial advantages of selling and moving during a market bubble.

The Near-Future Outlook for Home Ownership

As applications for home mortgages and home improvement loans increase, a number of home buyers have seemingly accepted the reality of rising rates. Despite the higher interest rates, the demand for home purchases has not fallen appreciably. A study by the Mortgage Bankers Association (MBA) found that purchase applications were still down 27% yearly, but mortgage applications rose 2% during that time, and the refinance index rose to 2.5%.

The housing market inventory does not look like it will improve soon, according to a RedfinReport. The pandemic, inflation, and increased interest rates have contributed to America’s current housing shortage and struggle. The ultimate solution lies in a renewed interest in new housing construction, which should alleviate the current shortage and also help stabilize the market.