Why This Market Feels So Tight Right Now

There’s a shift happening underneath all the headlines about rates and home prices:

The “home ATM” is basically closed.

I’m not sure everyone is picking up on it.

For most of the 2000s and again during the ultra low rate era, homeowners regularly tapped their equity.

They’d cash out refi, open HELOCs, and use the house as a financial shock absorber funding renovations, consolidating debt, or helping with the next home.

That has largely stopped.

Most mortgaged homeowners today are sitting on:

Very low mortgage rates

Very high equity

But the math of monetizing that equity means trading a 3%-4% mortgage for something in the 6%-7% range and a much higher monthly payment.

So instead of pulling cash out, a lot of people are just…staying put.

At the same time, mortgage rates have pushed higher again.

The average 30 year fixed is (stubbornly) back in the mid 6s, and the 15 year is in the high 5s; near the upper end of where we’ve been this year, but I’m seeing very few buyers willing to stomach the payment shock that comes with that shorter term.

Daily quotes have been bouncing around those levels as inflation data, strong labor numbers, and geopolitical tension keep upward pressure on borrowing costs.

Interestingly, buyers and lenders are starting to adjust to this as the new normal.

Mortgage applications actually jumped recently; double digit week over week growth driven by both purchases and some refinance activity.

That doesn’t mean it’s suddenly easy; it means the people who have to move, or who are determined to get in, are finding ways to make these numbers work.

Put those pieces together and you get a very specific kind of market:

On the sell side, owners are generally in good shape. They’re not over leveraged, and many have a big equity cushion but that equity is trapped behind low rates. The incentive to move “just because” is low.

On the buy side, households are dealing with higher payments, plus insurance and tax increases. They’re more sensitive to monthly cost than they were in the 3% rate world.

So, despite what Uncle Ernie says about the crash that’s coming just like in 2008 that he lived through, that’s why this doesn’t feel (and absolutely isn’t) anything like 2008.

Yes, we are well aware that foreclosure rates have ticked up significantly. But that’s from so low a base the last few years as to be close to insignificant, and especially in our market here. I’m willing to debate on this, becuase I keep reading the doomsayers telling me about foreclosure rates. Hit me up.

The stress point isn’t widespread distress; it’s friction:

Fewer move up sellers because giving up a low rate is painful.

Fewer cash out refis and HELOCs because borrowing against the house is expensive.

So we have a smaller, pickier pool of buyers who have to make the payment, insurance, and tax numbers pencil out, not just “stretch and hope.”

The result is a market that feels tight and unforgiving rather than frothy:

Some homes still see strong interest and solid offers.

Others sit, get passed over, or need price/terms to adjust before anyone will bite.

For you, as a current or future seller, the takeaway is simple:

This is even more than normal a math driven market. Strategy has to start from actual buyer capacity at today’s rates and carrying costs.

It will not matter what your neighbor got in a different rate regime. And it will not matter what your equity statement says on paper. And it absolutely will not matter what you spent on your kitchen.

And as we discussed the other day, please don’t stretch today and listen to the moron that tells you ‘you can always refinance to a lower payment’.

You can, except when you can’t -and now you’re trapped.

If you’re thinking about a move in the next 6-12 months and want a read on how these rate moves and the “closed Home ATM” dynamic affect your specific neighborhood and price range, I’m happy to walk you through it one on one.

Peace