Homeowners are staying in place longer than ever before, despite the growing amount of equity in their homes.
A new report from First American – a provider of title insurance, settlement services and risk solutions for real estate transactions – reveals that the median tenure for homeownership has jumped to 10 years, up 10% from last year.
By comparison, the median tenure in the pre-crash days of 2007 was four years, and in the aftermath of the market’s meltdown – when many homeowners couldn’t move because they were underwater on their properties – the median tenure was seven years.
Why are homeowners choosing to stay put longer than ever before?
In its Potential New Home Sales Report for September 2018, First American points to an underperforming housing market
“Rising interest rates create a financial disincentive that prevents existing homeowners with low mortgage rates from selling their homes, further limiting supply and restricting existing-home sales from reaching their potential.”
First American Chief Economist Mark Fleming said homeowners who secured mortgage rates below current rates are likely reluctant to give them up, creating a phenomenon he called the “rate lock-in effect.”
“There is less incentive to sell your home if borrowing the same amount from the bank at today’s rates will be more expensive than your existing monthly mortgage payment,” said Fleming. “As rates rise, many existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate.”
But, home prices have recovered over the last decade, Fleming points out, meaning that many homeowners have accumulated enough equity to sell their homes at a profit.
The result may be that more homeowners look to access the equity in their homes in other ways.
Fleming predicts an uptick in home equity lines of credit as more homeowners decide to fluff their nests rather than move.
“I think that HELOC loan demand will increase,” Fleming said. “The higher mortgage rates go, the larger the financial penalty for moving, and the greater the incentive to renovate with a HELOC loan instead.”