Interest rates on fixed-rate mortgages are up nearly three-quarters of a percentage point from last summer, and most economists are expecting mortgage rates to gradually move higher. Higher interest rates lessen home-buyer affordability and will lead to a substantial drop in refinance originations. And higher rates can also affect other aspects of the housing market, such as homeowner mobility.
Using CoreLogic’s public records data, one can measure homeowner mobility by the number of years between the home purchase and its subsequent sale to another buyer, and then calculate the percent of owners that sell after 1 year, 2 years, and so on. We found that the peak re-sale period comes about 3 to 6 years after purchase, and then the mobility rate declines gradually after that. (Figure 1)
When we compare the re-sale frequency when mortgage rates had risen by 1½ percentage points compared with their level as of the original purchase, we found that the mobility rate was lower. Conversely, when mortgage rates had fallen by 1½ percentage points, the homeowner was more likely to resell sooner. (Figure 2) When rates had moved lower, one-quarter of owners had re-sold their home within 5 years, but when rates had moved higher, it took about one year longer before one-fourth of the owners had re-sold. This suggests that the for-sale inventory may continue to remain lean for the foreseeable future, adding upward pressure to home-price growth.
During 2015 and 2016 30-year mortgage rates averaged about 3¾ percent, and there were close to 12 million home sales. Thus, if mortgage rates had remained about where they had been and resale rates were the same as in our historical analysis, then we would expect to have about 3 million of these homes re-sell during the next five years. But if mortgage rates average about 1½ percentage points higher, or about 5¼ percent, over the next five years, then about 0.5 million less homes will have re-sold, based on our historical analysis, or an average of 100,000 fewer sales per year. This simple comparison ignores other factors that will add to home sales in coming years, such as income growth and new construction, but it illustrates the effect higher rates may have on homeowner mobility.
Note: Sam Khater and Kristine Yao prepared the data used in the Figures.
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