With interest rates spiking higher this year, a common thought was that home prices would drop and inventory would increase, because that’s just math, pal. There’s nothing wrong with this argument; in a vacuum that mathematically makes sense for buyers (higher rates = higher monthly payments = reduced qualifications, which in theory should lead to lower prices). But there is a blind spot with that line of thinking. At a certain point, the math doesn’t work for the potential home seller. Observe:

If you feel like my Microsoft Paint skills are a hot mess, the short version is this: current homeowners have way lower rates now than if they’d go buy a new home, and the difference is significant enough that it could be a disincentive to sell. In the scenario above, if they sold they would pocket no proceeds from the sale (it would all go into the new house) and they’d pay an extra $600 a month, all for side-stepping to a new home for the exact same value.

I posted a video about this being a possibility in June, and now we’re starting to see data supporting the thought that sellers are walking away from listing:

What to do with this info depends on the person:

• If you’re waiting on a housing crash to get a good deal, just remember that sellers don’t have to sell. They can take their ball and go home.
• If these rates make you uneasy, keep in mind that if/when rates drop, that likely won’t lead to better affordability; historically low rates just lead to increased prices. And if rates drop you can refinance into a lower rate/payment (you can’t refi what you don’t own)
• If the budget concerns you then don’t feel pressured to dive into this market just for the sake of diving in. You can still achieve your wealth goals through renting, you just have to have a strategic plan in place.

Until next time!