On an earnings call earlier this summer, the chief executive of the online real estate brokerage Redfin was asked whether he had a contingency plan if interest rates did not come down? His answer was maybe a bit too frank.
“Great question,” Glenn Kelman, the C.E.O., began on the call on Aug. 6, “Plan B is to drink our own urine or our competitors’ blood.”
A little more than a minute later, he corrected himself, saying that he shouldn’t have used those exact words. But to the analysts on the call, his point was clear: The housing economy is in trouble, and a major reason has been soaring interest rates, which hit a high-water mark of 7.79 percent last fall.
Since then, the 30-year mortgage rate has dipped into the low 7s, then the high 6s and as of last week, it fell to 6.35 percent. The drop — coupled with a “likely” rate cut by the Federal Reserve at their upcoming meeting in September — should spell good news for the housing economy, but a major structural problem remains. Close to 60 percent of homeowners have outstanding mortgages that are locked in at rates below 4 percent, according to recently released data from Redfin.
If a homeowner sold and bought a new home in a comparable neighborhood, they would forego a low rate for another that is at least 2.5 percentage points higher. For many homeowners, that simply doesn’t make sense — a phenomenon that economists call the “golden handcuffs.”
While the recent dip in the mortgage rate has been significant — over 1 point in less than a year — I interviewed seven economists, as well as finance and real estate experts, who say it’s not enough.
