When will homebuyers give up on the idea of being able to refi at a lower rate?

[SilentC]

30yr mortgage rates have been above 6% since August 2022.  The “refi later this year at lower rates” narrative is still strong.  If rates continue to bounce between say 6.5% and 8% at what point do you think most buyers give up on the idea that mortgage rates will fall in the near term?  Two years of high rates?  Three?  Ten?  Said another way, how many years until people forget the 4% mortgage days?

[YttriumNitrate]

When we go through a recession, and the rates don't drop below 4%, then I think people will start to give up on the idea of refi-ing to a lower interest rate.

[waltworks]

Trump will just appoint a family member to run the fed and they'll drop rates to -5% so he can run for his 3rd term.

I'm kidding... maybe.

-W

[roomtempmayo]

When we go through a recession, and the rates don't drop below 4%, then I think people will start to give up on the idea of refi-ing to a lower interest rate.

We'll only know the new normal for many things once we've gone through a hard recession, interest rates and house prices included.

[SilentC]

When we go through a recession, and the rates don't drop below 4%, then I think people will start to give up on the idea of refi-ing to a lower interest rate.

We'll only know the new normal for many things once we've gone through a hard recession, interest rates and house prices included.

Well, let’s say we go five years with no recession and range bound mortgage rates.  Will people
still be expecting to be able to refi in a year?  I mean, it only took about one year of Covid lockdown for people to assume WFH would last forever and they could move wherever they wanted.  Seems strange to think they won’t move on from the idea of 4% mortgages at some point with or without a recession (?)

[Dave1442397]

It doesn't stop my moronic mortgage company (Mr. Cooper, aka Nationwide) sending me refinance letters and emails at least once a month.

"You could use your $383,000 in home equity to pay bills, go on vacation, or other YOLO crap!"

Yeah, right, no thanks.

Oh, I could also "lower my monthly payment", if I want my mortgage to be paid off in 2054.

I'm sure some people fall for this crap.

[Shuchong]

30yr mortgage rates have been above 6% since August 2022.  The “refi later this year at lower rates” narrative is still strong.  If rates continue to bounce between say 6.5% and 8% at what point do you think most buyers give up on the idea that mortgage rates will fall in the near term?  Two years of high rates?  Three?  Ten?  Said another way, how many years until people forget the 4% mortgage days?

I'm one of the people low-key hoping for a re-fi.  (My mortgage is 5.375%, so not terrible but not 2021 rates either.)  I'm not sure when I'll give up, or what that would look like.  I suppose it might mean pre-paying my mortgage?  Currently, I can take a mortgage interest deduction, and as a result ibonds with their tax-deferral are more attractive than pre-paying.  And even if they weren't, I like the extra liquidity that I get by not paying the mortgage down.  The ability to refinance if rates come down is an additional reason to pay the minimum each month, but it's third on the list behind rate arbitrage and preserving liquidity/asset diversity.

[nereo]

  Said another way, how many years until people forget the 4% mortgage days?

Well, I’ve had two mortgages at 2.X% and one at 3.25% over the last 12 years. So I’m not likely to “forget” them anytime soon, and certainly not 2 years into a 30 year term.

Rates and prices are exceptionally “sticky” in consumers’ minds. People remember what they paid in gasoline or milk years ago, and what their car loan rate was two vehicles and a decade+ ago. So I doubt they will forget and give up on lower rates for at least another 7 years

Then again, looking over the last 50 years of mortgage rates there’s a lot of variation, so I kinda doubt we won’t see sub 5% rates again for at least a few months at some point in the next decade. Wouldn’t be surprised to see above 8% rates for a time either (again). But homeownership being what it is to this country and our legislative priorities I wouldn’t be surprised to see all sorts of new methods to push rates lower, like additional federal backstopping.

[NorCal]

I think people with 20+ years on their mortgage will see rates both higher and lower than today's rates sometime over the term of the mortgage.

But those hoping for something dramatically lower this year will be disappointed.  The fed moving short-term rates likely won't have much impact on the 10 year rates mortgages are indexed to.  Maybe it would help car financing though?

[Duke03]

Trump will just appoint a family member to run the fed and they'll drop rates to -5% so he can run for his 3rd term.

I'm kidding... maybe.

-W

We really need a "Like" button around here lol.

[Askel]

It doesn't stop my moronic mortgage company (Mr. Cooper, aka Nationwide) sending me refinance letters and emails at least once a month.

I had a Mr. Cooper mortgage for a while.  It's a lot more fun to pretend all those emails are from this Mr. Cooper: https://en.wikipedia.org/wiki/D._B._Cooper

[theninthwall]

When real estate agents stop using it as a sales tool to encourage homebuyers to purchase more home than they can afford.

[reeshau]

When the yield curve reverts.

[SilentC]

When the yield curve reverts.

I think the long end is on the way to reversion right now?  Edit - you mean like when the Fed cuts short rates and long rates stay in the 4s?

[SilentC]

When real estate agents stop using it as a sales tool to encourage homebuyers to purchase more home than they can afford.

I was thinking, last fall half the high dollar houses in our neighborhood were offering 2-1 rate buydowns, and I haven’t seen one yet this year.  I think sellers get more desperate after the summer but maybe the storyline is already weakening thus less interest in short term buydowns?

[GilesMM]

I imagine they will give up once rates drop and they complete their refinancing. Why would they give up earlier?

[reeshau]

When the yield curve reverts.

I think the long end is on the way to reversion right now?  Edit - you mean like when the Fed cuts short rates and long rates stay in the 4s?

I was purposefully ambiguous; it could go either way.  But in a rational, steady state investors should be compensated for additional risk by getting higher rates for longer terms.  For now, the opposite is true.  Whether the short end goes down or the long end goes up, it will indicate a "normal" risk perception in the market.

[Mississippi Mudstache]

I imagine they will give up once rates drop and they complete their refinancing. Why would they give up earlier?

That's what I was thinking. I have a 6.25% mortgage. It's fine, we can service it easily. We also made a shitload of money on the last two houses we sold, more than enough to cover the additional cost of interest over the life of our current mortgage. But that doesn't stop me from keeping "what if" columns on my spreadsheets that show my potential cost savings if I could refinance at 4% or 5%.

If inflation stays high (compared to the last decade, anyway), and interest rates stay high as well, then I expect my salary to increase at a rate that will make my current mortgage payment even less burdensome in the future. So again, it's fine either way, but I'm certainly not "giving up" on the idea that I may be able to refi at a lower rate. I will take full advantage if/when I'm able.

[SilentC]

The question was when homebuyers will give up, not home owners.  Asking because realtors are beating this drum that you can refi in a year so it’s ok to stretch yourself to the limit today on payment, and I am wondering what it takes for that narrative to break so that affordability can potentially start to improve.  You are starting to see some of the “stay alive until 2025” talk slow down in commercial RE but that is a different market than residential home buyers. 

[roomtempmayo]

I am wondering what it takes for that narrative to break so that affordability can potentially start to improve. 

I'll venture a number: five years.

It took from 2008 to 2013 for asking prices to come down to market values.  And that was with a whole lot of economic distress forcing sales.

Housing prices are incredibly sticky because homeowners can generally just say in place and wait rather than sell on terms they don't like.

So it's probably five years minimum, if what we're really talking about is a price decline.

[Paper Chaser]

The question was when homebuyers will give up, not home owners.  Asking because realtors are beating this drum that you can refi in a year so it’s ok to stretch yourself to the limit today on payment, and I am wondering what it takes for that narrative to break so that affordability can potentially start to improve.  You are starting to see some of the “stay alive until 2025” talk slow down in commercial RE but that is a different market than residential home buyers.

Large home builders have been offering lower interest rates for many months now. If buyers can't get what they want in an existing house due to high rates, they'll probably just shift to new construction and the lower rates they can offer.

In theory, that change in demand for existing homes should bring values down and improve affordability, but that's going to take some time (years probably).

[Jon Bon]

Give up how exactly?

I have not given up hope that rates will hit 2% so I can refinance all my stuff that currently sits at 3.5%.

Give up hope to be able to afford the $x00,000 house at 4% but not at current rates? I do not really see that happening either. We all hope for lower rates, and lower taxes, and winning lottery numbers etc.

I guess my thought is those ultra low rates kind of broke the market. I have considered moving, but then I go sleep on my mattress of money that is the 3% rate that I currently have and I totally dismiss the idea. There are investment properties that I think about buying, but why would I buy when the returns are garbage because I have to pay 8%?

As for SFH? The market is just frozen, Maybe 5ish% would get it loosened up a little? But I think prices will remain where they are for the long term with inflation slowly giving new home buyers some relief. So a 500k house now will still be 500k dollars in the future but cheaper in real terms. I have zero need to move, and a massive negative incentive to trade in my interest rate.

[SilentC]

Give up how exactly?

I have not given up hope that rates will hit 2% so I can refinance all my stuff that currently sits at 3.5%.

Give up hope to be able to afford the $x00,000 house at 4% but not at current rates? I do not really see that happening either. We all hope for lower rates, and lower taxes, and winning lottery numbers etc.

I guess my thought is those ultra low rates kind of broke the market. I have considered moving, but then I go sleep on my mattress of money that is the 3% rate that I currently have and I totally dismiss the idea. There are investment properties that I think about buying, but why would I buy when the returns are garbage because I have to pay 8%?

As for SFH? The market is just frozen, Maybe 5ish% would get it loosened up a little? But I think prices will remain where they are for the long term with inflation slowly giving new home buyers some relief. So a 500k house now will still be 500k dollars in the future but cheaper in real terms. I have zero need to move, and a massive negative incentive to trade in my interest rate.

Question was about home buyers not home owners.  Separately I agree re the view of stagnant prices and elevated inflation making homes cheaper in real terms is a realistic base case. 

[SilentC]

I am wondering what it takes for that narrative to break so that affordability can potentially start to improve. 

I'll venture a number: five years.

It took from 2008 to 2013 for asking prices to come down to market values.  And that was with a whole lot of economic distress forcing sales.

Housing prices are incredibly sticky because homeowners can generally just say in place and wait rather than sell on terms they don't like.

So it's probably five years minimum, if what we're really talking about is a price decline.

I have started looking at when a lot of buyout firms stopped hedging floating rate loans, it might be a decent proxy and it seems like mid 2010s on a really small sample.  This argues it could be a decent while (like 5 years) but at the same time they are supposed to be sophisticated investors in theory. 

[ChpBstrd]

When we go through a recession, and the rates don't drop below 4%, then I think people will start to give up on the idea of refi-ing to a lower interest rate.

There's a compound issue here. In the event of a real recession people lose their jobs. When they lose their jobs they cannot refinance to take advantage of the lower rates. This makes them more likely to be foreclosed, which causes one more house to be empty for 6-18 months and another apartment to be occupied. So the people betting on a recession occurring that will result in lower rates are not thinking 3 steps ahead - they're only thinking one step ahead.

Essentially, they'll give up the refi dream when they are foreclosed upon.

Let's keep in mind the real cost of a home priced at $xxx,xxx is declining quickly in this environment where wages are increasing at a pace of 4-5%. In other words, if you make $100k per year in 2023, but 104k per year in 2024, your ability to purchase a house at 5x income went up by $20k. If house prices were flat, they became more affordable.

[clarkfan1979]

30yr mortgage rates have been above 6% since August 2022.  The “refi later this year at lower rates” narrative is still strong.  If rates continue to bounce between say 6.5% and 8% at what point do you think most buyers give up on the idea that mortgage rates will fall in the near term?  Two years of high rates?  Three?  Ten?  Said another way, how many years until people forget the 4% mortgage days?

Every market is local, so I think it depends. This is not my opinion, but the opinion of homebuyers for the island of Kauai (Hawaii).

In 2023 the median sales price went up and down from 1.1 million to 1.2 million throughout the year. It's about 30 single family homes sold per month, so the sample size is pretty small. For January 2024, it jumped to 1.44 million, then 1.43 million for February 2024 and now 1.6 million for March 2024.

The consensus among the real estate agents on Kauai describes the following thought process among their clients who are buyers. They claim that when the federal government signaled in December 2023 that they are no longer going to raise interest rates, it motivated their buying clients to make offers, based on the assumption that they are going to be able to re-finance in 1-2 years at a lower rate. I guess the thought process is that "the worst is over" so interest rate drops should come soon. Who knows if that will actually happen.

 

[Jon Bon]

Question was about home buyers not home owners.  Separately I agree re the view of stagnant prices and elevated inflation making homes cheaper in real terms is a realistic base case.

A buyer and a seller are the different side of the same coin. The vast majority of home buyers are also home sellers the same day.

Those low rates essentially locked up 50% of the market? There are lots of old folks that want to downsize, families that need more space, and none of us are making moves due to interest rates. So we sit and the supply remains constrained. Demand remains high due to lack of building and the construction mix that gets built.  I do consider buying, and that maybe I could refi at some point, but its too big a risk.

Now how does the fed unwind that problem we are facing? Your guess is as good as mine. Rates likely would need to become 'affordable' again? I mean yes we could wait 20-30 years until all those loans are paid off, but that's a long ass time!

Historically rates are not that bad, my parents always talk about the horrible interest rates in the 80s. I just think its kind of a giant fuck you to the 20-somethings trying to buy a house, like I'm sitting here on my 3% rate, in my nice fancy house, but "No soup for you!"

[ChpBstrd]

I think we need to give up on the financial media narrative about there being this huge pent-up demand for homes, or many millions of people waiting on the sidelines for rates to fall. It's starting to become an implicit, unquestioned assumption.

Yet if we look at the home ownership rate in the historical context, it appears we are in very average times. Could home ownership go up another 2% or so? Maybe. But how likely is that in the context of the worst price-to-income ratios in history and 7% interest rates?

[clarkfan1979]

Question was about home buyers not home owners.  Separately I agree re the view of stagnant prices and elevated inflation making homes cheaper in real terms is a realistic base case.

A buyer and a seller are the different side of the same coin. The vast majority of home buyers are also home sellers the same day.

Those low rates essentially locked up 50% of the market? There are lots of old folks that want to downsize, families that need more space, and none of us are making moves due to interest rates. So we sit and the supply remains constrained. Demand remains high due to lack of building and the construction mix that gets built.  I do consider buying, and that maybe I could refi at some point, but its too big a risk.

Now how does the fed unwind that problem we are facing? Your guess is as good as mine. Rates likely would need to become 'affordable' again? I mean yes we could wait 20-30 years until all those loans are paid off, but that's a long ass time!

Historically rates are not that bad, my parents always talk about the horrible interest rates in the 80s. I just think its kind of a giant fuck you to the 20-somethings trying to buy a house, like I'm sitting here on my 3% rate, in my nice fancy house, but "No soup for you!"

My step-sister owns her own real estate brokerage in Fort Myers, FL. They seem to be less affected by the higher interest rates than other parts of the country. Many retirees are selling their paid off home in the Northern United States for 600K to 700K and then paying cash for a 500K home in Florida. One client that I personally know (retiree) paid cash for a house for 365K in February 2022 in North Fort Myers, FL. That house is now probably worth 400K. Not crazy appreciation, but very stable.

[Jon Bon]

NPR just ran a similar story.

https://www.npr.org/2024/04/18/1244171720/baby-boomers-large-houses-millennials-homeownership

Boomers won't/can't move, they have the prime "family" houses so they are taken out of the asset mix. So the supply of family houses is reduced and prices do their thing.

They also are talking about the "mortgage lock in effect" Golden half cuffs basically applied to a mortgage rate. Half of borrows have a rate at or below 4%! Its also a good listen!

https://www.npr.org/2023/08/17/1194445813/when-mortgage-rates-are-too-low-to-give-up

[NorCal]

NPR just ran a similar story.

https://www.npr.org/2024/04/18/1244171720/baby-boomers-large-houses-millennials-homeownership

Boomers won't/can't move, they have the prime "family" houses so they are taken out of the asset mix. So the supply of family houses is reduced and prices do their thing.

They also are talking about the "mortgage lock in effect" Golden half cuffs basically applied to a mortgage rate. Half of borrows have a rate at or below 4%! Its also a good listen!

https://www.npr.org/2023/08/17/1194445813/when-mortgage-rates-are-too-low-to-give-up

Don’t forget that the boomers are also the most divorced generation. Many that never remarried are living alone in single family homes while other generations are more likely to have more than one adult per household. I’d be interested in seeing how this shows up in homeownership statistics.

Between my parents and my wife’s parents, the four of them own/live in 5 separate single family homes, each with at least 3 bedrooms.

[nereo]

Boomers won't/can't move, they have the prime "family" houses so they are taken out of the asset mix. So the supply of family houses is reduced and prices do their thing.

This describes my parents.  They have a prime 4 bedroom SFH in one of the most desirable locations, but have zero plans on moving. They have a double-lot (1.5 acres) which they bought before the area was built up, and they had truly exceptional appreciation over the last two decades. As empty-nesters they could comfortably live in something 1/4 the size on 1/10th the land, but they like it and can more than afford to pay people for the maintenance, so they'll probably stay there until they pass away.

[glacio09]

Boomers won't/can't move, they have the prime "family" houses so they are taken out of the asset mix. So the supply of family houses is reduced and prices do their thing.

This describes my parents.  They have a prime 4 bedroom SFH in one of the most desirable locations, but have zero plans on moving. They have a double-lot (1.5 acres) which they bought before the area was built up, and they had truly exceptional appreciation over the last two decades. As empty-nesters they could comfortably live in something 1/4 the size on 1/10th the land, but they like it and can more than afford to pay people for the maintenance, so they'll probably stay there until they pass away.

So many of my friend's parents are in that position. I also have a few that exasperated the situation. They retired and moved into the massive Mcmansion out in the middle of nowhere on acres of land with all the bedrooms for the grandkids. Now the house is falling apart, they can't do the lawn work, and they either never made friends in the new location, or it's too much work to get to town to see them. Adding insult to injury a lot have, um, interesting perspectives so the grandkids are kept at arm's length.

These are also the people who are so confused why i like my small condo in the city for a fraction of the cost.

[nereo]

These are also the people who are so confused why i like my small condo in the city for a fraction of the cost.

My dad keeps referring to our place as a "starter home" even though it's the 3rd home we've owned and the one we hope to live in for at least the next 20 years. We chose small (950 sqft* on a 1/4 acre lot) for a reason, and don't WANT a huge house even though we could certainly afford one according to the banks.

*we're actually expanding it to ~1,200 sqft with an addition, which we consider to be in our "sweet spot" for home size. Our previous home was 2,100 and it was way larger than we wanted. My parents home, in comparison, is just over 3,000 sqft for 1/3 fewer humans and zero pets.

[reeshau]

They have a double-lot (1.5 acres) which they bought before the area was built up, and they had truly exceptional appreciation over the last two decades.

This can be a second factor.  Even if they have a fully paid-for house, and could conceivably make a trade-up in location or amenities, and even take cash out, they may have a very low tax base, and the new taxes on their purchase price would itself make the house unaffordable.

[halfling]

I gave up when I realized my rent was liable to go up by 10% this year. Ran a bunch of numbers and realized that even with a 6.7% mortgage, owning was probably going to break even in a few years. I just try not to imagine my life with a 2019 mortgage payment anymore, lol.

[ChpBstrd]

Between my parents and my wife’s parents, the four of them own/live in 5 separate single family homes, each with at least 3 bedrooms.

This is such a golden illustration. It really changed my perspective on whether younger people are misplacing blame vs. whether subsidies (the reason 30y mortgages even exist in the US) suppressed the true cost of housing for the BB generation.

So many of my friend's parents are in that position. I also have a few that exasperated the situation. They retired and moved into the massive Mcmansion out in the middle of nowhere on acres of land with all the bedrooms for the grandkids. Now the house is falling apart, they can't do the lawn work, and they either never made friends in the new location, or it's too much work to get to town to see them. Adding insult to injury a lot have, um, interesting perspectives so the grandkids are kept at arm's length.

These are also the people who are so confused why i like my small condo in the city for a fraction of the cost.

These are also the people who live their lives in front of the TV or internet, which helpfully offer reasons to explain why they can have so many nice things and yet be so unhappy. It's the other type of people! They're a threat to your way of life you worked so hard to attain! Etc.

Actually it IS the other people; it's the other people and relationships you lack in a life that is organized around maximal consumption, a lifestyle you learned was good from the people who sold it to you.

[sonofsven]

The only way I see home buyers giving up on low interest mortgage re-fis is if house prices fall dramatically enough to make the payment appealing with the higher rate.
Historically, when we've had high interest rates we had low home prices. The low interest environment, coupled with the large numbers of the millennial generation looking to buy family homes, and the lack of such homes on the market, has left us with high rates and high prices.
I'm not bagging on millennials, they are just part of a large generation all competitive for a limited housing resource.
When I and my gen x cohorts were buying in the 90's it seemed like there were lots of a available homes and they were cheap (this was in Portland, OR, which is now very unaffordable).
There's also the "stickiness" mentioned above of those with extremely low rates unwilling to give them up, thus less homes for sale.
And the high cost of land and increasing regulations which make it more expensive to build, the system is set up to favor existing homeowners over prospective home buyers.

[SilentC]

Re the original question, I’m starting to think it doesn’t matter as much as I thought, as most people buy to the max anyway.  There are certainly some that stretch a little harder thinking maybe in a year or two they can lower their interest burden and have enough money for the family vacation again or whatever, but maybe not enough to be a real catalyst for the market.

Side note, credit card delinquencies have gone from about 4.5% of balances in mid-2022 to over 8%.  Something to watch that could be a catalyst?  After a decade of being able to cash out refi your house every year to pay off your credit card and other high interest debts this game no longer works. 

[clarkfan1979]

Re the original question, I’m starting to think it doesn’t matter as much as I thought, as most people buy to the max anyway.  There are certainly some that stretch a little harder thinking maybe in a year or two they can lower their interest burden and have enough money for the family vacation again or whatever, but maybe not enough to be a real catalyst for the market.

Side note, credit card delinquencies have gone from about 4.5% of balances in mid-2022 to over 8%.  Something to watch that could be a catalyst?  After a decade of being able to cash out refi your house every year to pay off your credit card and other high interest debts this game no longer works.

Both very good points. It makes sense for credit card delinquencies to go up in 2023 and 2024 due to higher interest rates. Not having the refinance option does change things. It changed things for me. If rates were still low I would do another cash-out re-fi and buy another rental house.

[reeshau]

WSJ headline this weekend:  These Home Sellers Are Done Waiting for the Fed to Lower Rates

[ChpBstrd]

WSJ headline this weekend:  These Home Sellers Are Done Waiting for the Fed to Lower Rates

Well hell, there's the answer to the OP, from a credible source!

Housing market crash inbound I suppose. Real estate top is in.

[SilentC]

From today’s article on Wolfstreet.com on the matter.  Forgot about the vacant inventory piece of the equation, he has some stats on that too in other articles:

“Homeowners have totally opened up the market for homebuilders by clinging to their hopes that mortgage rates will “soon” drop back to 3% (good luck!), and that therefore prices will soon start to spike again, and that they can ride up this market with their vacant house they’d moved out of some time ago but haven’t put on the market yet.”

“So prices of new and resale single-family houses have moved close together, they’re within a hair. And with mortgage-rate buydowns, the monthly payments can be lower on a new house compared to an existing house, as homebuilders have been aggressively competing with these homeowners, and have said so in their earnings calls.”

[reeshau]

Given how long we have been in this situation, and the uproar among realtors with the fee judgment, I'm kind of surprised some major player has not offered some kind of buy down program to homeowners.  Nothing more would attract attention, and being first there could be a differentiator.

It's been great for homebuilders, though.  I'm glad that was my real estate bet.

[SilentC]

Given how long we have been in this situation, and the uproar among realtors with the fee judgment, I'm kind of surprised some major player has not offered some kind of buy down program to homeowners.  Nothing more would attract attention, and being first there could be a differentiator.

It's been great for homebuilders, though.  I'm glad that was my real estate bet.

I think the reason is that the sellers hoping to get summer 2022 prices for their house are not going to pay for it.  Those big buy downs are expensive, like 6%+ of the mortgage value and the builders pay for it by taking lower margin and offering less incentives elsewhere (no “free” upgrades).  Pulte talked a lot about how they make it work a couple quarters ago.  Likewise, buyers can already pay points to get a better rate but they don’t want to come to close with an extra $50k on points.

[reeshau]

Given how long we have been in this situation, and the uproar among realtors with the fee judgment, I'm kind of surprised some major player has not offered some kind of buy down program to homeowners.  Nothing more would attract attention, and being first there could be a differentiator.

It's been great for homebuilders, though.  I'm glad that was my real estate bet.

I think the reason is that the sellers hoping to get summer 2022 prices for their house are not going to pay for it.  Those big buy downs are expensive, like 6%+ of the mortgage value and the builders pay for it by taking lower margin and offering less incentives elsewhere (no “free” upgrades).  Pulte talked a lot about how they make it work a couple quarters ago.  Likewise, buyers can already pay points to get a better rate but they don’t want to come to close with an extra $50k on points.

The way he framed the buydown was it cost $30k to keep $80k of the sticker price.  So, a $50k arbitrage, plus not upsetting existing residents.

A >100% return on money in short order sounds like a good thing.  I agree homeowners don't have that kind of cash individually, which is why I thought some realtor would come up with it, like a tax preparer advances you your refund.

[SilentC]

Given how long we have been in this situation, and the uproar among realtors with the fee judgment, I'm kind of surprised some major player has not offered some kind of buy down program to homeowners.  Nothing more would attract attention, and being first there could be a differentiator.

It's been great for homebuilders, though.  I'm glad that was my real estate bet.

I think the reason is that the sellers hoping to get summer 2022 prices for their house are not going to pay for it.  Those big buy downs are expensive, like 6%+ of the mortgage value and the builders pay for it by taking lower margin and offering less incentives elsewhere (no “free” upgrades).  Pulte talked a lot about how they make it work a couple quarters ago.  Likewise, buyers can already pay points to get a better rate but they don’t want to come to close with an extra $50k on points.

The way he framed the buydown was it cost $30k to keep $80k of the sticker price.  So, a $50k arbitrage, plus not upsetting existing residents.

A >100% return on money in short order sounds like a good thing.  I agree homeowners don't have that kind of cash individually, which is why I thought some realtor would come up with it, like a tax preparer advances you your refund.

I get that, but that assumes most home sellers are rational. I think it’s pretty well established that home prices are sticky because of loss aversion and anchoring. No one wants to take that loss/pay for big incentives until they have to, better to dangle it on the market and hope for rates to fall.

Edit- I get what you are saying better than I did earlier, it makes sense.  Sellers tried a lot of short term buy downs last fall in my hood but those cost 10k or less per my realtor, a lot easier to stomach on a $900k sale than $50k.  Also a lot got pulled and were relisted and in March ahead of what was supposed to be rate cuts.  Maybe the sellers who have been trying to sell for a long time that don’t want to budge on price as much as they need to would be willing to throw in the towel and put $50k into a buy down. 

[Dicey]

Dunno what the answer is, but we're boomers (very late). Our house is too big for us and we're willing to downsize, but there's nothing in our area that works for us. We're unwilling to buy a much smaller house for much MORE than we paid for this one. Well, we would, but most of them are overpriced junk. In CA, we can roll our tax base over three times, so it isn't really the taxes. We have no mortgage, so it isn't really the interest rates. There is literally nothing to buy. We've been actively hunting for our next property for five years.

We look at open houses regularly, then follow up to see what they sold for. Yesterday, two in the recent cohort went for $200k over asking, oof. As long as demand exceeds supply, it's probably going to stay this way.

Sidebar: Our kids live in an area that has a strong employee housing program. Problem is that older people's kids grow up and move on while the parents stay in their cost-controlled home. Worse, the parents retire and then they're technically not even employees. This makes it tough for young families. So the housing board (I'm deliberately being a little vague here) has been actively working to downsize older people from their large homes. Our kids just bought a right-size home for their family of five. The housing board gave the previous owner, now a widower, $100k and the opportunity to buy a brand-new, right-size for one, home for less than the value of their existing home.

[reeshau]

We're unwilling to buy a much smaller house for much MORE than we paid for this one. Well, we would, but most of them are overpriced junk.

Thanks for sharing your personal perspective, Dicey.

However, this statement concerns me a bit.  Price anchoring on a prior market is a bias that keeps you there...forever?  In any case, unless there is a market downturn severe enough to erase gains?  The chart below shows the rise of median house price in the US.  Of course, NorCal is multiples of that.  But the most rational choice is to think about the difference in your house price today, vs. your downsizing target.  If your house could draw equivalent ridiculous overbids, then you are in the catbird seat in this market.  I'd hate for you to waste that opportunity.

[Dicey]

We're unwilling to buy a much smaller house for much MORE than we paid for this one. Well, we would, but most of them are overpriced junk.

Thanks for sharing your personal perspective, Dicey.

However, this statement concerns me a bit.  Price anchoring on a prior market is a bias that keeps you there...forever?  In any case, unless there is a market downturn severe enough to erase gains?  The chart below shows the rise of median house price in the US.  Of course, NorCal is multiples of that.  But the most rational choice is to think about the difference in your house price today, vs. your downsizing target.  If your house could draw equivalent ridiculous overbids, then you are in the catbird seat in this market.  I'd hate for you to waste that opportunity.

I understand anchoring and price bias. We are absolutely thinking about our current house value vs. our target. Half the house for almost as much as our current value? Getting involved in bidding wars? No thanks, we'll stay put.

The most egregious overbidding is happening in what's called the first-time home buyer's market, which is also the same market we'd be trying to get into. At our price point, there's far less of that insanity. Also, we'd have to sell our house first, and then what would we buy? It's easier just to stay here, which was the point of my comment. I think a lot of Boomers are facing the same issues.

BTW, "starter" houses in our area are going for roughly $1k per square foot, up to about 2,000 sf. It really is insane.