Former Costa Mesa Mayor and land developer Jim Righeimer stated that the performance of the U.S. housing market is quite unusual. Despite buyers stepping back, home prices have not dropped.
According to a report from the real estate platform Redfin, home prices saw a modest increase of 0.2% in November. At the same time, there are 37% more sellers than buyers in the U.S. housing market.
Both sides are at a standstill.
Righeimer recently mentioned in an interview with EpochTV’s “California Insider” that “we are in a very unique market.”
He pointed out that many homeowners are reluctant to sell their homes because they have locked in ultra-low mortgage rates. Therefore, when moving, they prefer to rent out their old homes rather than give up the low-rate loans.
For decades, new residential construction has accounted for about 10% of the U.S. housing market, while the remaining 90% comes from existing homes. However, Righeimer noted that in recent years, the percentage of new homes has surged to approximately 30%.
These results stem from what economists refer to as the “golden handcuffs effect.”
In order to cushion the impact of the pandemic on the economy, the Federal Reserve lowered interest rates to near zero, leading to historically low 30-year fixed mortgage rates of 2% to 3%. This enabled millions of homebuyers to lock in super-low 3% interest rate mortgages.
Now, with mortgage rates reaching 6%, doubling from 3%, homeowners with ultra-low rate mortgages are reluctant to sell their properties and move elsewhere.
The Trump administration proposed the concept of portable mortgages, aiming to further unlock the “golden handcuffs.” This policy would allow homeowners to transfer current mortgage rates, terms, and repayment periods to new standalone homes, townhouses, or apartments.
Meanwhile, homeowners are still resisting price depreciation, not wanting to see their property values decline, Righeimer said. No one wants to buy a house for $450,000 and end up selling it for $400,000. Consequently, people are striving to push back against the pressure of declining prices.
Even President Trump acknowledged this dilemma. On one hand, young people hope to afford homes, while older homeowners do not want prices to drop.
In December, Trump stated, “I don’t want prices to fall because I want their houses to maintain high value. At the same time, I want to provide opportunities for young people and others to buy homes. To some extent, these two goals conflict with each other.”
Industries have been working to keep transactions afloat under current market conditions before any changes occur.
Righeimer noted that large builders have intervened in the market by offering aggressive mortgage rate subsidies. As they sell thousands of homes and can package or hold loans themselves, they can provide artificially lowered rates to buyers, typically in the range of 3% to 3.5% for 30 years, or at this level for the initial few years.
This makes new homes more affordable for many buyers than resale listings, especially for first-time buyers who do not need to sell a previous property.
However, economic uncertainty and high prices are still causing potential homebuyers to remain cautious. Though rates are trending downward, with an average 30-year rate slightly above 6%, the biggest concern lies in overall confidence in the U.S. economy.
Data shows that buyers are starting to hesitate. Redfin’s statistics indicate that 15% of home transactions fell through in October, a rise of 14.3% from the previous year.
After experiencing a frenzy during the pandemic, the U.S. real estate market is now returning to normalcy.
With a decrease in the number of forming households and people moving away from certain areas, demand has weakened.
Some markets that saw a surge in population during the pandemic, such as Texas’ Austin and most areas in Florida, are now returning to normal. Population influx during the pandemic boosted local property valuations, and Florida’s lack of state income tax further fueled price increases. However, with more supply entering the market and demand stabilizing, prices are currently under downward pressure.
After decades of inadequate construction failing to keep up with population growth, the U.S. housing supply is gradually improving. Last year, active inventory increased by over 14%.
Righeimer stated that buyers no longer need to panic buy. More listings are likely to appear next week.
He advised, “Unless there are barely any available homes in your area, you won’t see a large flock of people trying to buy the same house at once. Take your time, explore different properties, understand the market trends, and strive for better prices.”
For those striving to achieve the American dream of homeownership, negotiating prices and clarifying how much room there is for negotiation is entirely appropriate. ◇