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Back in the late 1970s, the term golden handcuffs was popularized as a way to explain why ambitious professionals were choosing to stay put rather than explore other employment options. The reason being, of course, that their employers were spoiling them with generous above-market compensation—including stock options—and benefits.
Fast-forward to 2023, and the term golden handcuffs can also be used to explain why many homeowners who’d like to move are instead choosing to stay put. See, if these homeowners did choose to sell their home and buy something new, they’d likely be giving up their 2% to 3% mortgage rate and taking on something in the 6% to 7% ballpark. That potential mortgage rate payment shock is just too pricey for many would-be move-up buyers to stomach.
If a borrower were to take on a $500,000 mortgage at a 3% interest rate, they’d owe a monthly $2,108 principal and interest payment over the course of the 30-year loan. However, at a 7% mortgage rate, that payment would be $3,327 per month.
Simply put: The 2% and 3% mortgage rates—which were a policy outcome of the COVID-19 recession—are acting as golden handcuffs.
And the numbers back it up.
According to Realtor.com (see chart below), a total of 406,822 homes were listed for sale in May 2023. That’s down 22.9% from the 527,920 listed for sale in May 2022, and down 30.4% from the 584,952 listed for sale in pre-pandemic May 2019.
The lack of homes for sale spells bad news for real estate agents and mortgage brokers who make their living on transaction volume. See, the fact that new listings are down 22.9% on a year-over-year basis means that home sales are staying suppressed even as buyers come back into the market.
For real estate agents who work in communities with high construction volume, things aren’t so bad given that many builders have brought back agent commissions. However, mortgage brokers aren’t so lucky: They’re also dealing with the fact that the refinance market has plummeted. After all, how many 2% and 3% mortgage rate holders want to refi when rates are over 6%?
The searchable chart below shows the shift in new listings for the 100 largest U.S. housing markets.
Keep in mind that pullback in new listings isn’t just felt on the supply side, it’s also delivering a hit to the demand side. If a particular homeowner decides to hold off on trading up properties, it means there is one fewer home going on the market and one fewer buyer hitting the market.
To better gauge the supply and demand balance, it’s best to instead look at active listings, otherwise known as inventory. Unlike the new listing total (i.e. the number of homes going on the market in a given month), the active listing total (i.e. total inventory on the market) is a better indicator for the balance in a market at any given time.
In May 2023, active listings were 22.1% higher than May 2022 (signaling some housing market softening); however, active listings are down 50.5% since May 2019 (signaling it’s still a competitive market, nationally speaking).
