The Expert Podcast

We've mentioned this a few times in the past, but here's an article that kind of gets into some of the details behind a chronic crisis in the housing market that may be overlooked. This article is titled "Will Anyone Ever Buy or Sell a Home Again?" That's a pretty provocative statement and a pretty extreme thing to say, but there is some truth to it. Think about it. Every home purchase needs a buyer and a seller, obviously. Well, you might think that if you're a seller, obviously you want to sell your house.

But when you sell your house, you're also selling your mortgage—not really selling it, you're just getting rid of it, paying it off. So, if you have a mortgage that is in the two or three or even four percent range, when you sell your house, you're waving bye-bye to that cheap money. Most people that own a home have a mortgage on the house, and you pay your mortgage payments to the lender. Well, those payments are based on the interest rate when you got that mortgage. Even if you purchased a home in 2012 or 2013, you've lived there for 10 years, you probably had a mortgage that was six percent, maybe seven, maybe five from back then. But when the rates went down to two or three percent, it's a no-brainer, you refinanced and got a two or three percent mortgage. So, almost everybody who's a homeowner and has a mortgage has a rate that's very, very low—four percent at the most, probably very few people even at five percent that are in a home now.

You might say, "Well, what about people who own their homes for cash?" You're right, a lot of people do have houses that they own for cash, but now your mortgage rate is zero, and if you sell your house and buy something bigger, you either have to put more of your cash into the house or get a higher mortgage. You're in really good shape right now if you own a house for cash or if you have a low mortgage rate. Why would you want to sell? There's really not a huge amount of inventory where you can nitpick about getting the dream house. You're almost better off upgrading your current house. So, what about sellers? What about buyers?

Well, if you are a buyer and you're fortunate enough to find a house for sale (and there are houses for sale, obviously— all sellers have not disappeared), you're going to find that first of all, the price is high. Why? Well, that seller has seen the market go up. In 2020, 2021, and the beginning of 2022, prices of homes were at the highest level ever. So, even if a seller says, "Well, you know, I know the market's going down, I know there's less buyers, so I could sell my house if I reduced the price," they might leave it on the market at a high price and say to themselves, "Well, if I get this higher price, I'll sell it. If I don't, I'll just keep it and I'll keep my three percent mortgage rate and live happily ever after." So, if you're a buyer, that's what you're up against. You may not see that because your seller just sees a price in a house. That's it. You don't know the seller's background, what's going on with them, or their current financial situation. But I guarantee you, if you run a title search on that house, take a look at what their mortgage is—even if the rate isn't on the paperwork—find out when they got their mortgage. If they got their mortgage in 2018 or 2019 or even 2020, even the beginning of 2021, they have a two or three or four percent mortgage. Look up what the rates were then, and that's what you're asking your seller to get rid of. They're getting rid of cheap money.

How much of a difference is there? Well, a two hundred thousand dollar house at two percent, you're talking maybe six or seven hundred dollars a month. Now that that house has gone up in value, if there's a four hundred thousand dollar house at a seven percent mortgage, now you're talking four thousand dollars a month. See where that went? So, for that seller to get rid of that house, they either need to find a home that's substantially better (which means paying a lot more money) or paying a higher interest rate (which they probably don't want to do).

The other thing is, most states, the tax on the house, the property tax, is based on what you bought it for. Sure, it goes up a little bit every year, but it doesn't ratchet up to the current value. Most states have limits on how much your taxes can go up. So, now that the real estate market has jumped, why do you want to pay taxes on $600,000 when you're locked in at maybe paying taxes on $250,000 or $300,000? We just saw a house recently that the owner bought in 2015 for $370,000. Their taxes on that house are $2,800 a month. The house right next door, the same house, same floor plan, very similar, just sold for $680,000. The taxes on that house are going to be $5,800 a year.

So, it's double, plus the interest rate, plus the price. So many people are deciding not to sell unless they have an extra house or it's really financially lucrative, meaning they can charge a high price. So, if you're a buyer or seller, there's a lot of reasons why you don't want to buy or sell, and that could slow down the transaction rate of the marketplace.