Americans are remaining in their homes longer than ever before, consequently tightening the lid on housing supply.
First American data indicates that homeownership tenure has risen 10% just from 2017 and has significantly climbed since the market crashed in 2008.
“Tenure jumped to seven years during the aftermath of the crash between 2008 and 2016, and the most recent data from December 2018 shows that the median length of time someone lives in their home has increased 10% compared with a year ago.” First American Chief Economist Mark Fleming said.
But why are more and more homeowners deciding to stay put?
“Clearly, every homeowner’s decision to sell is different and influenced by personal and family preferences, but the influences above all factor into the decision to sell,” Fleming said. “Yet, today, we are in a near unprecedented homebody era, as increasing mortgage rates, low supply, low rates of foreclosure and tight credit have increased homeowner tenure to the highest level in 18 years.”
According to ATTOM Data Solutions latest Home Affordability Report, the median home price has reached its least affordable level since the third quarter of 2008.
Fleming said lower interest rates are also a leading contributor to the supply and demand stalemate.
“The lower the interest rate homeowners have on their existing mortgage compared to the current market mortgage rate, the less incentive there is for homeowners to move, leading to higher tenure length, Fleming continued. “Why move when it will cost more each month to borrow the same amount from the bank?”
According to Fleming, homeowners that purchased their homes 10 years ago, are likely to have refinanced into a 3.5% mortgage. Therefore, the most recent 4.6% 30-year, fixed-rate mortgage might seem “unattractive.”
Interest rates are not the only deterrent either, as Fleming also attributes tight credit standards to the increase in tenure.
“Because a homeowner’s decision to sell is driven by their decision and ability to buy, tighter credit standards increase tenure length,” Fleming said. “When homeowners are less likely to receive mortgages for a new home, they are more likely to stay in their current home.”
So, what does that mean for the housing market’s future?
“While it is unlikely the influences that are currently driving tenure higher will change in the near term, more than half of all existing-homes are owned by baby boomers and the silent generation, who will eventually age out of homeownership,” Fleming said. “When that occurs, the problem may not be a lack of supply, but the exact opposite.”
(source: Housing Wire)