Home Buyers

High Interest Rates Trap Homeowners in Current Mortgages

For months, real estate sales have struggled due to a persistent lack of available homes for sale. This has been attributed to a “golden handcuff” effect resulting from high interest rates, which deters homeowners from obtaining new mortgages or finding sellers able to afford their homes. This may change if interest rates manage to decline, but that may not happen for the foreseeable future.

High Interest Rates Keep Buyers at Bay

Interest rates for 30-year fixed rate mortgages with conforming loan balances have sat above 7% since late August, reaching a high of 7.23%. Though it has since come down slightly to 7.12%, this still places it at approximately two full percentage points above what it was just a year ago, and the highest they have been in 23 years. These high interest rates have had the predictable effect of keeping many prospective buyers at bay, making it harder for them to obtain financing to buy a home.

Troubles With “Golden Handcuff” Mortgages

As a result of these high interest rates, many current homeowners are locked in what some economists have referred to as “golden handcuff” mortgages. Traditionally, the golden handcuff effect has referred to the use of benefits like stock options or use of a company car as incentives to retain highly compensated employees. Here, however, it refers to current homeowners who feel proverbially shackled to their current mortgages, which are at dramatically lower interest rates than what they could get in current market conditions.

Waiting for a Downward Shift in Interest Rates

This has left many homeowners looking carefully at when interest rates might decrease. The magic number, according to a survey by John Burns Research and Consulting, is 5.5%. Once interest rates decline to that point, there may be a sudden burst of sales as people seek to purchase new homes or sell their current homes. However, it is unclear when they may happen, as interest rates have been kept high by the Federal Reserve as a measure to combat inflation.

What You Can Do

That being said, there are still ways to potentially sell your home without needing to worry about struggling through conventional financing. If you sell your property for cash, you do not need to deal with the problems associated with high interest rates. However, the only way to know if this may work for you is to contact the residential home buyers at Stable Holdings to see if a cash offer may be right for you.

At Stable Holdings, we assist our clients with a variety of services related to buying and selling real estate, including purchasing homes for cash. We have experience handling real estate financing, especially for developers and house flippers. If you are interested in selling your home for cash, please contact us at 516-548-6553, or visit our contact page.

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