New Year’s Eve is traditionally the night of hope for the new year, resolutions and good wishes. When it comes to the real estate market, 2026 isn’t promising much of a variation from the old year, but hope is eternal and humans are optimistic.
Homeowners are locked in place trapped by their low-interest rate mortgages designed as a vaccination against recession when the pandemic hit. This is not a new topic; anyone who reads real estate news online or in the paper can find discussions practically every day about why homeowners with high equity and low mortgages won’t move.
There are millions of homeowners who are wealthier on paper than at any time in history. They have record equity, incrediable low interest rates and many with homes that have appreciated by double digits in only a few years.
So, what’s the problem? You would think they would be running to their local broker to list their home and cash in. The problem is, per Realtor.com, for these owners to buy a typical home in today’s market would require an estimated payment of more than 73% than they currently pay. For most that’s a non-starter; even if they can afford the extra payment, the physiological effect won’t let them budge.
When mortgage rates started falling, almost overnight, to as low as 3%, demand surged for the lower rate to refinance or to purchase. Buyers saw a pathway to purchase their first home or move up home because with lower rates the monthly carrying costs took a nosedive resulting in more people qualifying for higher mortgages.
With buyers coming out of the woodwork, it didn’t take long for the inventory to get snapped up, pushing prices upward. Builders were attracting buyers so fast the supply chain could not keep up the labor, supplies and zoning changes necessary to meet the overwhelming response.
All of this competition pushed prices up so far that values surged by 25% to 40% in some markets.
Needless to say, homeowners were celebrating their new equity and looking down the road at long-term stability. But if it’s too good to be true, it usually is, and it didn’t take long for inflation to take over, forcing the Feds to move rates in the opposite direction. Within 18 months mortgage rates more than doubled, passing over the 7% mark. This dried up the refinance market and buyers were having trouble living with the shortage of inventory and higher priced properties, along with a doubling of interest rates.
The real estate market froze, but not because of a lack of homes alone. It froze because those who owned homes couldn’t justify leaving them. This is completely the opposite of a healthy market. A healthy market should encourage mobility, opening up space for new home buyers, keeping the cycle going.
The real estate structure needs some creative ideas and one of them is portable and assumable mortgages. At one point we had a fair number of assumable mortgages, but that market is rarely offered anymore. Portable mortgages exist in other countries and would certainly open up the mobility of properties. Also, incentives to downsize, like tax credits and closing cost incentives, could also unlock homes. Whatever it is, someone should take the lead on this, whether it’s lenders or political office holders.
Paying more for less is not in the American DNA so it may take a long time to release millions of homeowners from the mortgage trap.
Happy New Year and best wishes for a prosperous year.
