Squeezed by high interest rates and record prices, homeowners are frozen in place. They can’t sell. So first-time buyers can’t buy.
If buying a home is an inexorable part of the American dream, so is the next step: eventually selling that home and using the equity to trade up to something bigger.
But over the past two years, this upward mobility has stalled as buyers and sellers have been pummeled by three colliding forces: the highest borrowing rates in nearly two decades, a crippling shortage of inventory, and a surge in home prices to a median of $434,000, the highest on record, according to Redfin.
People who bought their starter home a few years ago are finding themselves frozen in place by what is known as the “rate-lock effect” — they bought when interest rates were historically low, and trading up would mean a doubling or tripling of their monthly interest payments.
They are locked in, and as a result, families hoping to buy their first homes are locked out.
My spouse and I bought our starter home (3bed 2ba 1107 sq ft) in 2017 for $130k. Now we’re trying to upgrade to bigger because we have since had a child and would like another. One bedroom is used as our office because my spouse works from home. But we have no ROOM. Our house is estimated to sell for $290k but we can only afford a mortgage on a $350k house now because of mortgage rates, even after more than doubling our income through job changes. The number of houses in our area in our price range is small, not much bigger than our starter house, and most of the time total gut jobs. We can’t go anywhere. There’s nowhere to go.
There is nowhere to go. I think that just about sums it up for people today. We have lost our freedom to not enough housing and there is no solution coming.
First, don’t share any information that you’re not comfortable with. I’m not trying to pry into your life. However, I’m not quite following this your numbers and seeing your same limits.
So yes, your mortgage payment would be more than double what it is now, but the difference is only $5208/year more. That’s certainly not nothing, but you also said…
Does doubling your income still make $5208 more of housing cost per year difficult?
By pushing up your purchase price and getting a mortgage on a $400k home ($237,000 mortgage with your current equity) would push your monthly payment up to $1,673 or an extra $12,624/year over your current mortgage and interest payment. Unless your starting salaries were pretty low to begin with, it seems like this would possibly be in reach for you.
What am I missing?
One other random thing to consider, many of us did a refi during the pandemic. Hell, my bank simply said they’d lower my interest rate if I didn’t leave and refi with another bank. Shit was bonkers during the pandemic.
All in all, they might be sub 4% or even sub 3%.
Absolutely. We refinanced to 2.8% from 3.9% but we also rolled a high interest student loan into that so we ended up saving $1000/month. We could move but unless we completely moved areas, the housing prices are going to be similar to ours but with a 6.9% interest rate.
Can you renovate your current home to get another bedroom and maybe some more common space?
You could probably get a 2nd mortgage for a project like that but if you aren’t familiar with them then you should speak to a financial advisor (one that has a fiduciary duty to you). This may allow you to keep your existing mortgage and rate on the first loan and only pay the higher rate on the 2nd.
I’m in a very similar situation, but I’m just dealing with it and being content to own a home. I keep upgrading what I can and have plans in the works to expand our space a couple of ways.
Also thinking about buying some land and building the next house when the time comes