Rukmini Callimachi interviewed seven economists for this article, as well as experts in the housing economy.
On an earnings call earlier this summer, the chief executive of the online real estate brokerage Redfin was asked whether he had a contingency plan if interest rates did not come down? His answer was maybe a bit too frank.
“Great question,” Glenn Kelman, the C.E.O., began on the call on Aug. 6, “Plan B is to drink our own urine or our competitors’ blood.”
A little more than a minute later, he corrected himself, saying that he shouldn’t have used those exact words. But to the analysts on the call, his point was clear: The housing economy is in trouble, and a major reason has been soaring interest rates, which hit a high-water mark of 7.79 percent last fall.
Since then, the 30-year mortgage rate has dipped into the low 7s, then the high 6s and as of last week, it fell to 6.35 percent. The drop — coupled with a “likely” rate cut by the Federal Reserve at their upcoming meeting in September — should spell good news for the housing economy, but a major structural problem remains. Close to 60 percent of homeowners have outstanding mortgages that are locked in at rates below 4 percent, according to recently released data from Redfin.
If a homeowner sold and bought a new home in a comparable neighborhood, they would forego a low rate for another that is at least 2.5 percentage points higher. For many homeowners, that simply doesn’t make sense — a phenomenon that economists call the “golden handcuffs.”
While the recent dip in the mortgage rate has been significant — over 1 point in less than a year — I interviewed seven economists, as well as finance and real estate experts, who say it’s not enough.