Homeowners nationwide continue to feel the mortgage “lock-in effect,” with many choosing to stay put rather than trade low pandemic-era rates for today’s higher monthly payments. A Realtor.com report found that this lock-in effect is mainly felt in expensive coastal markets, leaving homeowners “frozen” in terms of mobility and inventory growth.
According to the publication, the typical U.S. mortgage holder pays about $1,300 in principal and interest per month. But if they were to purchase a home today, that payment would increase by more than 73% or $1,000. Across the U.S., 80.3% of existing mortgages have interest rates under 6%, including nearly one-third (32.1%) locked in at 3% to 4%.
Here are five “frozen” housing markets this winter, according to Realtor.com and what potential buyers and sellers can do.
San Jose, California
At the top of Realtor.com’s list as the most “locked-in” major metro is San Jose, where both buyers and sellers are constrained by affordability.
Before buying a house in San Jose, make sure you can afford the current prices and rates. A Redfin report found that in San Jose, a homebuyer needs an annual income of $408,557 to afford the typical home for sale — the highest in the nation.
On the seller side, Realtor.com found that the typical San Jose homeowner looking to sell and then buy a comparable home can expect their monthly mortgage payment to jump by about 180%, from $2,604 to $7,281.
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Los Angeles
Los Angeles came in at a close second. The typical home seller would see a mortgage payment increase of approximately 176%, from $2,096 to $5,792.
Cara Ameer, bicoastal real estate broker at Coldwell Banker Vanguard Realty, told Realtor.com that many homeowners in Southern California are choosing to stay put because of lower mortgage rates. Ameer explained that it doesn’t make financial sense for a large portion of the population to move unless someone can cash out and pay for a home outright or take out a small loan.
Portland, Maine
Portland has the third-largest gap between existing and new mortgage payments, Realtor.com found, at over 154%, at $3,305, up from $1,297.
Portland sellers can benefit from a hot market, as demand and limited supply have increased the median home price to $550,000 earlier this year, up from about $325,000 in 2019, according to Zillow and the Bangor Daily News.
However, buyers facing affordability pressure may need to adjust expectations, consider different property types or look outside their initial target areas to find workable options in high-rate markets. For example, while home prices in Portland have continued to surge, condo prices have seen a sharp downward adjustment, according to Mainebiz.
Oxnard, California
In Oxnard, the gap stands at nearly 152%, with mortgage payments increasing from $2,090 to $5,267, Realtor.com reported.
Things could be turning around for buyers in Oxnard. Oxnard realtor Ann Howarth wrote in a blog post that 38% of homes sold below asking price in May, which gave buyers more room to negotiate. The city also saw the highest inventory level in months and the 36-day average days on market means less pressure on buyers to act quickly.
Despite higher prices, sellers in this market need to know how to market their homes. Aside from accurate pricing, sellers need to make sure their home is ready to sell and be prepared to negotiate, Howard wrote in a separate blog post.
Bridgeport, Connecticut
Fifth on Realtor.com’s list is Bridgeport, with a 148.5% gap. Current mortgage holders have a median monthly payment of $1,696, while the estimated monthly payment is $4,214.
Sellers in Bridgeport can also benefit from a strong seller’s market, but it may be a different story if you’re looking to buy and sell at the same time.
Buyers are facing strong demand, tight inventory and rising prices in Bridgeport, Buy, Sell, Build Connecticut Homes reported. To determine if you’re financially ready to make a move, John Sobota, real estate expert from the University of Wisconsin-Stout, recommended getting pre-approved for a loan, NBC Connecticut reported. According to Sobota, it adds value to your offer and most lenders like 30% of your gross income to go towards housing.
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This article originally appeared on GOBankingRates.com: 5 ‘Frozen’ Housing Markets This Winter — Plus What Potential Buyers and Sellers Can Do
