US Existing-Home Sales Fall to 4.06 Million as Rosenberg Warns of 2008 Echo

Q: If seventy percent of homeowners are trapped by low mortgage rates, what drastic economic shift will it take to unlock housing inventory?

It likely takes a sustained drop in mortgage rates into the mid-5% range, not just a brief dip, to materially unlock inventory. The core problem is the “lock-in” effect: roughly 70% of homeowners have mortgages at 5% or below, and many refinanced near 3% to 4%. Selling means giving up that cheap debt and buying again at around 6.5% to 6.7%, which can raise monthly payments dramatically even if owners bring significant equity. Economists and mortgage executives in the industry data say many owners would be more willing to move if rates fell and stayed in the low- to mid-5% range. A move back merely to 6% would help demand, but it may not be enough to trigger a broad wave of listings. That said, lower rates alone probably would not create a flood of supply. Inventory is also constrained by high home prices, a shortage of entry-level homes, and the fact that many owners still do not see an affordable replacement home. Research on mortgage lock-in suggests rising rates suppress mobility, especially among would-be downsizers, which reduces resale supply more than it reduces demand. So the “drastic shift” is not a recession or price crash so much as a meaningful, durable easing in borrowing costs combined with better affordability. If rates stay near current levels, the market is more likely to remain stuck, with only gradual inventory improvement driven by life events, localized price cuts, and more new construction in softer regions.

3 articles · Updated · Yahoo Finance · Aug 12

Existing-home sales fell nearly 2% to a 4.06 million annualized pace in July, dropping below early-2008 levels that David Rosenberg says preceded the housing crash.
Mortgage rates above 6.6% have sidelined buyers, while the lock-in effect from cheaper pandemic-era loans has kept many owners from listing, leaving transaction activity unusually weak.
Inventory has risen to 4.6 months of supply, and Rosenberg said similar demand-supply pressure previously coincided with about a 2% drop in median home prices even as broader inflation worries persist.
Falling home prices could spill into the wider economy by eroding homeowners' paper wealth and weakening consumer spending in coming months, he said.