Low interest rates keep homes off the market

The current shortage of housing stocks has become a key factor in the volatility of the country’s housing market in 2021. Driven by a severe imbalance between supply and demand, inventories have reached historic lows in many parts of the country. , which leads us to ask ourselves: where are all the houses for sale?

Among the reasons why the owners decided not to list their homes for sale from March to August 2021:

  • 12% of owners cited refinancing as a reason to stay put, according to a recent Zillow

Since starting to fall in 2020, mortgage interest rates have been near their all-time lows. The owners took advantage of these low interest rates to refinance their home to reduce their monthly mortgage payments. With new lower payments – and with the recent sunk investment in refinancing mortgage set-up costs – homeowners are less likely to register in the months following a refinance.

While it is an advantage for these homeowners to refinance, the refinancing boom has reduced opportunities for home buyers. The inventory of Multiple Listing Service (MLS) in the United States is already very limited, and this factor only makes the home search process more competitive.

Here in California, the situation is even more volatile.

Low Californian inventory

While inventory for sale increased from the all-time low reached in late 2020, in California’s largest subways, inventory was on average 23% lower than a year earlier in July 2021, according to data from Zillow. In July 2021, compared to a year earlier, the drop in inventories was the strongest with:

On the other hand, San Francisco and San Jose both saw very slight increases in inventory for sale compared to the previous year with:

However, San Jose and San Francisco make up only a small portion of the California real estate market, so their increase in inventory is an anomaly compared to declining inventory in most of the state.

In 2020, more than 1.1 million mortgages were refinanced in California alone, more than double the 416,000 mortgage refinances closed in 2019. At the end of 2020, refinances represented 79% of all mortgage arrangements. .

Although state-level refinancing figures are not yet available for 2021, fixed rate mortgage interest rates (FRM) increased slightly in the first half of 2021, only to decline in the third quarter of 2021. Thus, refinancing reports are expected to show a continued inverse relationship with interest rates in 2021.

Although the majority of refinancings are now behind us, refinancing will continue to account for an oversized mortgage origination market share in 2021 and 2022, reflecting less door-to-door sale and low interest rates. And although low interest rates are expected to continue until 2022, they are gradually increasing, so this high trend in refinancing is unlikely to continue in the long run.

Associated article:

Optimistic, Fed begins bond withdrawal – and interest rates rise

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