Boy are these guys going to be surprised if rates come down and nothing changes.

The difference in rates might have the least to do with being locked in!

Here is more of the psycho-babble – and this guy is a chief economist:

Switching from a lower mortgage rate to a higher one can lead to significantly increased monthly payments. For many homeowners, the cost of selling their current home and purchasing a new one with a higher mortgage rate is financially unfeasible.

What could ease the lock-in effect going forward?

    • Life events: Over time, life events such as having an additional child or receiving a big promotion might prompt homeowners to sell their current homes and move, despite their ultralow mortgage rates. These personal changes could outweigh the financial disincentives for some.
    • Falling mortgage rates: If mortgage rates decrease, improved affordability could entice more homeowners to sell and buy new homes. While homeowners might not trade in their 4.0% mortgage rate for a 7.0% rate, they might consider moving if it means taking on, say, a 5.5% mortgage rate. This reduction in rates, if it occurs, could lower the switching cost and make moving a more viable option.

And odds are, the lock-in effect could take years to fade away.

“Mortgage rate trends aren’t likely to bust the lock-in effect until at least the end of the year, and possibly well into 2025, as the Fed holds fast on fighting inflation,” predicts senior economist Ralph McLaughlin.

“We’ll likely need to see a 150 to 200 basis points drop in the 10-year yield to get there, and at current spreads, this could require three to four rate cuts by the Fed. As of now, the market is pricing in just one to two cuts by the end of the year and two to three cuts in 2025,” he adds.

What are they missing? How hard it is to move.

You have to be willing to grind for months in search of a better home (one that makes it worth moving), juggle the sell-first-or-buy-first equation, pay six figures in capital-gains taxes, pay six figures in closing costs, and then fix up the new house like you did the old house. Sill want to move?

Hat tip to Carl for sending this in:

author avatar
Jim the Realtor
Jim is a long-time local realtor who comments daily here on his blog, which began in September, 2005. Stick around!

Pin It on Pinterest