Millions of Americans Aren’t Staying Put Because They Love Their House. They’re Staying Put Because Giving Up a 3% Mortgage for a 6%+ Mortgage Can Make Absolutely No Financial Sense.
Written by Devone Richard
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WE KEEP TRYING TO FIX THE WRONG DAMN PROBLEM
Everybody wants to know what’s wrong with the housing market.
Why aren’t homeowners selling?
Why is inventory still tight in so many markets?
Why aren’t families moving up?
Why aren’t empty nesters downsizing?
Here’s one major reason:
THEIR MORTGAGE RATE HAS THEM HANDCUFFED TO THE HOUSE.
Millions of homeowners bought or refinanced when mortgage rates were historically low.
Maybe they’re sitting at 2.75%, 3.25% or 3.75%.
Now their family needs a bigger house.
Maybe the kids moved out and they need something smaller.
Maybe they got a job somewhere else.
Maybe they’re simply ready to move.
Then they calculate the payment on their next house at today’s mortgage rate.
Suddenly:
“Forget it. We’re staying.”
And another potential house never hits the market.
THE MORTGAGE LOCK-IN EFFECT IS REAL
This isn’t Realtor speculation.
The Federal Housing Finance Agency has studied mortgage-rate lock-in.
FHFA researchers estimated that each percentage point by which current mortgage rates exceeded a homeowner’s existing rate reduced the probability of selling by 18.1%. An updated FHFA analysis estimated lock-in prevented approximately 1.72 million home sales from the second quarter of 2022 through the second quarter of 2024.
1.72 MILLION SALES.
Think about what those houses represent.
Inventory.
Move-up buyers.
Downsizers.
First-time buyers getting access to homes currently occupied by people who would otherwise move.
We keep talking about stimulating housing demand.
WHAT ABOUT UNLOCKING THE SUPPLY WE ALREADY HAVE?
LET HOMEOWNERS MOVE THEIR RATE
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Here’s what I want the mortgage industry and policymakers to seriously explore:
MAKE MORTGAGES PORTABLE.
If I have a qualifying mortgage at 3.25%, sell my primary residence and purchase another primary residence, create a mechanism that allows me to carry some or all of that financing benefit to my replacement property.
I’m not saying throw underwriting out the window.
Requalify me.
Check my credit.
Verify my income.
Appraise the new property.
Protect the lender.
Protect investors.
Put reasonable restrictions around the program.
And if I’m buying a more expensive property?
Maybe the remaining balance of my existing mortgage keeps its original rate while the additional amount I borrow gets financed at the current market rate.
There are multiple ways smart financial people could structure this.
FIGURE THE DAMN THING OUT.
Portable mortgages already exist in some other countries, although their mortgage systems differ from ours.
The concept isn’t science fiction.
LOOK AT WHAT HAPPENS WHEN PEOPLE CAN MOVE AGAIN
Imagine a couple owns a three-bedroom house.
Their children are grown.
They would happily sell and buy a smaller condo.
But they have a 3% mortgage.
Their Realtor shows them condos.
They find one they love.
Then the lender shows them the new payment.
DEAL OVER.
They stay in the three-bedroom house.
Meanwhile, a family with two children desperately wants exactly that kind of property.
The family can’t buy it because it never reaches the market.
Now imagine the homeowners can preserve their favorable mortgage benefit when downsizing.
They sell.
The young family buys their house.
The condo seller moves.
Another buyer purchases something else.
ONE MOVE CREATES ANOTHER MOVE.
That’s how a housing market functions.
WE HAVE A HOUSING MOBILITY PROBLEM
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Housing isn’t supposed to be permanent.
People’s lives change.
Starter house.
Family house.
Bigger house.
Smaller house.
Retirement house.
Different city.
Different state.
But when somebody’s mortgage becomes more valuable than their ability to move, the housing market becomes less fluid.
And that affects everybody behind them.
This isn’t just about generating Realtor commissions.
It’s about housing mobility.
People should be able to move when their job, family, finances or lifestyle changes without facing an enormous financing penalty simply because interest rates changed.
WOULD THIS BE EASY? HELL NO.
America’s mortgage system is complicated.
Mortgages are originated, sold, packaged into securities and owned by investors expecting particular cash flows.
You can’t simply declare:
“Everybody gets to keep their 3% mortgage forever.”
There are legitimate questions involving collateral, servicing, underwriting, mortgage-backed securities, investor rights and who bears the economic cost of below-market financing.
And portable mortgages wouldn’t solve America’s housing shortage by themselves.
WE STILL NEED TO BUILD MORE DAMN HOUSES.
Starter homes.
Condos.
Townhomes.
ADUs.
Smaller houses.
More appropriate density.
Faster approvals.
Lower unnecessary construction costs.
Mortgage portability would be one tool, not the entire solution.
But complexity shouldn’t stop us from examining an idea that could potentially unlock existing housing inventory.
America figured out mortgage-backed securities.
We figured out 30-year fixed mortgages.
We built one of the most sophisticated financial systems in the world.
DON’T TELL ME WE CAN’T EVEN FIGURE OUT HOW TO LET A QUALIFIED HOMEOWNER MOVE.
FIRST-TIME BUYERS NEED EXISTING OWNERS TO MOVE TOO
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Everybody talks about helping first-time buyers.
Good.
But where are those buyers supposed to live?
Sometimes the answer isn’t another brand-new subdivision.
It’s the starter house currently occupied by someone who would love to move up but refuses to surrender their mortgage rate.
Unlock the homeowner.
You may unlock the house.
Unlock enough houses and you create inventory.
FINAL THOUGHT
We keep asking how to stimulate housing.
Here’s an idea:
STOP FINANCIALLY PUNISHING PEOPLE FOR MOVING.
Create safeguards.
Require underwriting.
Protect lenders and investors.
Limit the program if necessary.
But seriously explore allowing qualified homeowners to carry their mortgage benefit from one primary residence to another.
Because when homeowners move, houses hit the market.
When houses hit the market, buyers get choices.
When buyers get choices, transactions happen.
And when transactions happen, the housing market starts moving again.
LET THE HOMEOWNER MOVE.
LET THE MORTGAGE BENEFIT MOVE WITH THEM.
THAT’S HOW YOU STIMULATE THE FUCKING HOUSING MARKET.
— Devone Richard
Written by Devone Richard
Broker/Owner | OYT Real Estate
California Broker #01857383
Nevada Broker #1002115
📞 626-500-1212 | 702-941-0202
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