Low Mortgage Rates Keep Some Homeowners in Golden Handcuffs

Those Gen Zers and millennials who were lucky enough to purchase a house may end up stuck in their starter homes for longer than planned. That’s right, this housing market presents challenges — even if you do own your home.

U.S. home prices are at record highs. And mortgage rates are high, too, having surged from their pandemic-era historic lows. The numbers are stark: In January 2021, the average 30-year fixed mortgage rate was less than 3%. Today it’s more than twice that. The monthly mortgage payment on a $428,000 house – the median price as of September – has climbed to roughly double what it was in 2021.

For newer homeowners outgrowing their digs, this could hamper buying something bigger. Roughly 35% of all homeowners (and nearly half of homeowners under the age of 50) feel stuck in their current home due to the current interest rate environment. And it’s not just a problem for young families. Many older Americans want to downsize, but are trapped by the same market dynamics.

So what? Mortgage rates are influenced by the Federal Reserve’s key interest rate, which dropped for the first time in more than four years in September. The Fed cut rates again in November, and more cuts are expected in coming months. This should eventually nudge mortgage rates downward, too. Some economists predict the average 30-year fixed mortgage rate could fall into the sub-6% territory by the beginning of 2025. And that could give homeowners – and the whole market – enough of a shake to finally get unstuck.

Photo Credit: iStock/SethCortright

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