One such theory is the rate lockdown thesis. It claims that Americans are staying in their homes longer to keep their lower mortgage rates. When mortgage rates rise, it becomes less desirable to move up to a bigger, more expensive home.
Personally, I have never been a fan of this thesis. The idea that homeowners, en masse, are refusing to move due to their individual mortgage rates goes against well established economic fundamentals.
The rate lockdown thesis is easy to test. If it holds up, then when mortgage rates fall, homeowners who have been anxiously waiting will put their homes on the market, and inventory will open up.
Except that has never happened in this cycle. Inventory always went down when rates lowered because demand got better. The only time inventory went up was when mortgage rates went higher, demand got softer and sales went down.
Makes sense, right?
We saw this in 2013-2014 and again in 2018-2019. In each of these periods, when rates went higher, demand fell and inventory went up. However, when it went lower, demand got better and the monthly supply fell. We never saw the releasing of inventory that some had hoped for when rates went lower.
The other fallacy of logic in this theory is that it assumes that homeowners believe they will be locked into a higher rate mortgage for the life of the loan. Maybe these theorists never heard of refinancing.
The truth is that people moved when they need to. So why is housing tenure increasing?
Well, if it is generally true that people move when they need to, then it is also true that people don’t move when they don’t need to.
Americans are staying in their homes longer because the house they have is perfectly suitable for their family’s needs. For more than four decades, home sizes have been getting bigger while family size, as you can see below, has been in decline.
The so-called “starter home” these days may be big enough until the kids leave for college. The growth in multi-generational housing plays into this as well.
Unless the homeowner was living in a small single-family resident or condo, the four-decade push of bigger homes fit their needs.
As you can see below, we got as high as 2,698 for the average square feet floor area for single-family units in Q2 2015:
It is true that after the housing bubble and crash, the lack of equity prevented some people from moving and led to an uptick in housing tenure.
But that is an old story.
Today, people move because of kids, school, jobs or divorce. Aside from periods of a job loss recession, inventory for both new and existing homes has been steady since 1996.
Moving forward in this decade, we do have one possible positive trend that could facilitate more move-up buyers and an increase in inventory in the starter home market… Kids!
The U.S. is entering into a big demographic patch of people ages 30-39 — and with this age group comes marriage and kids.
An increase in children means more first-time homeowners should be move-up buyers if their current home is too small. Birth rates, while currently low, have the potential to grow in the next 10 years.
Housing marketers love “if-only” excuses for why the housing market is not at record-breaking highs. “If only the inventory were better, we would have more sales. If only interest rates weren’t so gosh-darn high, we would have more sales.”
I’ll leave you with this: Beware of the “if-only” excuses and stick to the data if you are really interested in understanding the U.S. housing market.
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