5% Tipping Point for Sellers vs. Locked-In Owners

SEATTLE – A new survey identified the “mortgage rate tipping point.” Current owners with that rate or higher are more likely to sell. Those with a lower mortgage rates are more likely to stay because they don’t want to lose that rate. 

The tipping point for sellers? 5%.

Homeowners with a mortgage rate above 5% are nearly twice as likely to say they plan to sell their home than their below-5% counterparts.

According to the survey from Zillow, about 80% of today’s mortgage holders reported having a rate of less than 5%, and about 90% have a rate less than 6%. Almost one-third reported a rate less than 3%.

Since current mortgage rates hover a bit under 7%, a vast majority of U.S. homeowners considering a move would have to pay a higher mortgage rate to do so. The study generally found that those with a rate at 5% or higher would consider the tradeoff worth it – those with a lower rate not so much.

“We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future,” says Orphe Divounguy, a senior economist at Zillow Home Loans. “That means many homeowners will move only for major life events, like a new baby or retirement. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices.” 

There is reason to be optimistic, though. The study found that 23% of homeowners are considering selling their home in the next three years or currently have their home listed for sale, which is notably higher than the 15% of homeowners who said the same one year ago.

The share is even greater among mortgage holders who have a rate above 5%: Nearly two out of five homeowners (38%) would consider selling their home in the next three years.

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