Here’s what upgrading to a nicer home could cost you, and why it’s locking up the market

The
spring
housing
market
is
defying
expectations
that
prices
would
cool
and
competition
would
ease.

Higher
mortgage
rates
usually
cool
both
prices
and
demand,
as
they
did
last
year,
but
that’s
not
the
case
now.
There
are
still
too
few
homes
for
sale
because
current
homeowners
can’t
afford
to
move,
and
it’s
keeping
prices
high.

Home
prices
in
February
were
5.5%
higher
than
they
were
in
February
of
last
year,
according
to
CoreLogic.
That
annual
comparison
is
shrinking
slightly,
but
the
price
gain
from
January
to
February
was
nearly
twice
what
it
normally
is
for
that
time
of
year,
suggesting
this
spring’s
market
started
out
strong
despite
higher
interest
rates.

The
average
rate
on
the
30-year
fixed
mortgage
hit
its
latest
high
in
October,
briefly
crossing
over
8%.
It
then
dropped
back
into
the
6%
range
for
much
of
December
and
all
of
January.
It
rose
back
over
7%
in
February,
which
should
have
cooled
the
market.

But
sales
of
newly
built
homes,
which
are
counted
by
contracts
signed
during
the
month,
were
nearly
6%
higher
in
February
year
over
year.
Pending
sales
of
existing
homes,
also
based
on
signed
contracts,
were
down
7%
that
month
from
the
year
before,
but
not
for
lack
of
demand.

The
real
trouble
in
today’s
existing
home
market
is
lack
of
supply.
There
are
more
new
listings
this
spring
than
last,
but
supply
is
still
40%
below
where
it
was
pre-pandemic.

That’s
partly
because
current
homeowners
are
plagued
by
a
lock-in
effect:
They
won’t
list
their
homes
for
sale
because
the
cost
of
moving
up
is
so
high.

In
the
22
years
before
the
Federal
Reserve
started
raising
rates
in
2022,
upgrading
to
a
25%
more
expensive
home
would
have
increased
the
average
homeowner’s
monthly
payment
of
principal
and
interest
by
40%,
or
about
$400
on
average,
according
to
data
from
ICE
Mortgage
Technology.
Moving
to
a
similar
house
across
the
street
wouldn’t
change
their
payment
at
all.

In
stark
contrast
today,
the
average
homeowner
with
a
near
record-low
mortgage
rate
would
see
their
monthly
payment
shoot
up
132%,
or
roughly
$1,800,
in
order
to
move
up
to
a
25%
more
expensive
home.
Buying
the
same
home
they’re
in
now
would
increase
their
monthly
payment
by
60%,
according
to
ICE.

Those
increases
represent
national
averages
and
can
vary
market
to
market.
For
example,
moving
up
would
add
$604
to
a
homeowner’s
monthly
payment
in
Buffalo,
New
York,
an
increase
of
108%;
and
$4,517
in
San
Jose,
California,
an
increase
of
161%,
according
to
the
ICE
data.

“Lower
rates
would
ease
the
calculation
for
many
and
make
moves
more
reasonable.
But
the
net
result
continues
to
be
too
few
homes
for
too
many
buyers,”
said
Andy
Walden,
ICE’s
vice
president
of
enterprise
research. “Until
that
fundamental
mismatch
is
addressed,
simple
supply
and
demand
will
continue
to
press
on
both
inventory
and
affordability.”

If
rates
fell
to
6%,
the
monthly
payment
increase
to
trade
up
to
a
25%
more
expensive
home
would
ease
from
a
103%
average
jump
to
88%
–
a
modest
but
welcome
improvement,
according
to
Walden.

If
rates
fell
to
5%,
moving
up
would
require
a
68%
larger
payment,
still
much
higher
than
the
long-run
average
of
39%,
but
perhaps
enough
to
motivate
someone
with
a
compelling
need
or
desire
to
upgrade.

While
not
all
borrowers
have
record-low
rates,
more
do
in
pricey
markets
because
the breakeven
point
on
the
cost
of
a
refinance
is
typically
lower
for
higher-balance
borrowers,
so
they
have
more
incentive
to
do
it.
They
also
likely
have
higher-balance
loans,
so
moving
up
to
a
higher
rate
would
be
even
costlier.
That’s
why
the
lock-in
effect
is
stronger
in
much
of
California,
where
homes
are
most
expensive.

The
vast
majority
of
borrowers
today,
88.5%,
have
mortgages
with
rates
below
6%,
according
to
Redfin.
Roughly
59%
have
rates
below
4%,
and
close
to
23%
of
homeowners
have
rates
below
3%.

Those
shares
are
slightly
lower
than
they
were
last
year,
because
some
people
did
choose
to
move
in
the
last
year,
but
it
shows
what
the
market
is
up
against,
especially
given
high
and
still-rising
home
prices.

A
new
report
from
Zillow
shows
the
U.S.
now
has
a
record-high
550 “million-dollar”
cities,
or
cities
where
the
typical
home
is
worth
$1
million
or
more.
That
is
59
more
million-dollar
cities
than
there
were
in
2023,
when
home
values
were
weakening
due
to
rising
mortgage
rates.