Why So Few Houses For Sale? Pandemic-Refinancers Have 24 Billion Reasons to Stay Put

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If you’re house hunting and having trouble finding anything for sale, you can partly blame the 14 million mortgage holders who took advantage of ultra-low interest rates in 2020 and 2021. 

Key Takeaways

  • About 14 million mortgage borrowers refinanced their homes between 2020 and 2021.
  • Rates were at all-time lows during the pandemic, sinking as low as 2.65%.
  • Some homeowners chose to lower their payments, while others extracted equity from their homes.

That’s according to an analysis released Monday by a team of economists at the Federal Reserve Bank of New York who studied what they dubbed “The Great Pandemic Mortgage Refinance Boom.”  The economists found about a third of all outstanding mortgage debt got refinanced between 2020 and 2021, when rates plunged to all-time lows. Those homeowners collectively lowered their payments by $24 billion a year and extracted $430 billion of equity from their homes.

The report highlights the enormous financial benefits that many homeowners got—and continue to get—because of nearly two years of ultra-low rates, and how those benefits have contributed to a deadlocked housing market with still-high prices, low inventory, and sluggish sales

When the pandemic emergency struck in March 2020, the Federal Reserve lowered its benchmark interest rate to near-zero in an effort to reduce borrowing costs and stimulate the economy to weather the pandemic-induced downturn. 

Mortgage rates, which typically follow yields for 10-year treasury bonds and investors’ fears about inflation, sank as low as 2.65%, compared to rates hovering around 4% in pre-pandemic years according to data from mortgage giant Freddie Mac. The low rates made refinancing almost a no-brainer.

Out of the 14 million who refinanced between the second quarter of 2020 and the end of 2021, 9 million got “rate refis,” which reduced the interest rate on their mortgages, leading to lower monthly payments, on average of $220 a month. 

Another five million got “cash-out” refinances, which allowed them to tap the equity they’d built up in their homes, getting $82,000 in cash on average in exchange for their monthly payments rising by an average of $150.

On top of that, another 17% of all mortgages were turned over through sales to new owners with lower interest rates.

The refinancing boom evaporated in 2022 when the Fed hiked its interest rates steeply to combat inflation, and mortgage rates followed suit—the average last week was 6.35%. That’s led to a situation where many current homeowners feel “locked in” by their low mortgage rates even if they have other good reasons to move.

“The end of the most recent exceptionally low interest rate period leaves homeowners somewhat disincentivized to sell or change properties,” the economists wrote. “Owners looking to move will face increased borrowing costs and higher prices.”

Article Sources
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  1. Liberty Street Economics. "The Great Pandemic Mortgage Refinance Boom."

  2. Freddie Mac. "Primary Mortgage Market Survey."

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