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23
WHY HOMEOWNERS
AREN'T SELLING
e average tenure of homeowners
remaining in their current homes has increased
from an average of four years in 2007 to 10
years in September 2018, according to First
American's report on Potential Home Sales.
e report indicated that despite rising
home equity, rising interest rates were creating
a financial disincentive that prevented
existing homeowners who had locked in their
mortgage rates when they were low from
selling their homes. is, in turn, according
to Mark Fleming, Chief Economist at First
American, was "further limiting supply and
restricting existing-home sales from reaching
their potential."
Citing data from DataTree by First
American, Fleming pointed out that just prior
to the financial crisis, homeowners stayed in
their homes for four years, but that tenure
increased to around seven years between 2008
and 2016.
"Many people remained in their homes
because their mortgage balances exceeded
their property values during this time, so
they would have lost money by selling their
homes," he said. "However, as home prices
have recovered over the last 10 years, many
homeowners have accumulated enough
equity to sell their homes at a profit. Despite
the increase in equity, median tenure length
jumped to 10 years in September 2018, a 10
percent year-over-year increase."
Data from the Potential Home Sales
model indicated that the market for existing
home sales was underperforming its potential
by 7.2 percent, even though potential home
sales increased to a 6.18 million seasonally
adjusted annualized rate month-over-month
in September.
"ere is less incentive to sell your home
if borrowing the same amount from the bank
at today's rates will be more expensive than
your existing monthly mortgage payment,"
Fleming said. "As rates rise, many existing
homeowners are increasingly financially
imprisoned in their own home by their
historically low mortgage rate."
e report measures existing-homes sales,
on a seasonally adjusted annualized rate
based on the historical relationship between
existing-home sales and U.S. population
demographic data, income and labor market
conditions in the U.S. economy, price trends
in the U.S. housing market, and conditions in
the financial market.
