Home sellers pushed into hiding by skyrocketing borrowing costs in the US are beginning to emerge, stoking optimism for a break in the logjam that’s gripped the housing market for more than a year.

More owners are listing their properties, some motivated by mortgage rates that are down about a percentage point since flirting with 8% in October. For those still holding onto cheaper loans, life marches on — jobs change, marriages dissolve, partners die, babies arrive — and it’s a question of how long they’re willing to wait for rates to fall further before making a move.

In a market hamstrung in recent years by a critical supply shortage, even a small improvement in listings can help get transactions going again as the key spring selling season begins. It would be a welcome shift after purchases of previously owned homes in 2023 tumbled to an almost three-decade low.

“This could be a turning point in the long unwind,” said Susan Wachter, a professor of real estate at University of Pennsylvania’s Wharton School. “Every tick-down in rates is going to matter in terms of increasing inventory.”

The mortgage “lock-in effect,” with borrowers clinging tight to sub-4% loans, is beginning to loosen its grip on the housing market. But change is likely to be slow as both buyers and sellers come to terms with interest rates that the Federal Reserve has signaled won’t get much lower for a while, and purchase prices that are still rising across much of the country.

The number of US homes that were newly listed in the four weeks through March 3  jumped 13% from a year earlier, the biggest annual increase for that period in data from Redfin Corp. going back to 2015.

After years of soaring values, a growing number of homeowners are seeing an opening to cash out and move on. They “may also be realizing that mortgage rates aren’t going back anywhere close to where they were when they bought their current home,” said Mark Zandi, chief economist for Moody’s Analytics.

As the supply of listings picks up, prices should moderate, and may even decline in some areas, enticing more buyers who’ve been sidelined by the affordability crunch, according to Zandi. But momentum is unlikely to really pick up until 30-year mortgage costs drop closer to 6%, he said.

“And if rates move much higher from here,” Zandi said, “listings will decline and the housing market will lock up tight again.”

Florida and Texas
The nascent rebound has been fairly widespread so far, with new listings rising in almost all of the 50 largest metropolitan areas tracked by Redfin. Of the top 10 markets with the biggest increases, seven were in Texas or Florida.

Meanwhile, new listings declined in Atlanta and the area of northern New Jersey that includes the pricey suburbs of Montclair and Short Hills. In the Northeast in general, where zoning rules and a densely packed landscape leaves little room for new construction, inventory is stuck well below pre-pandemic levels.

Brad O’Connor, chief economist for Florida’s Realtors group, said his state’s jump in listings has taken him by surprise. He has a couple theories. For one, the population includes many seniors who have largely paid off mortgages, so they’re less susceptible to the lock-in effect, he said. Also, holding costs for second homes — including rapidly rising insurance premiums — have gotten more burdensome.

More choices would offer some relief for house hunters in Florida, where median prices skyrocketed 55% since the start of 2020, according to an analysis of January data from the state Realtors group.

“I generally think it’s positive,” O’Connor said. “As long as we keep getting these new listings, then it’s going to be cooling off the price growth.”

More supply will help in general, but in some parts of Florida, demand has also fallen off. Amy Simmonds, a Realtor with Compass in Jupiter, said the combination of soaring prices and insurance costs are pushing buyers away. Some owners are selling and moving to states like Georgia and the Carolinas, where their expenses are much lower, she said.

“Insurance is surprisingly high so it throws off the ratios for people in terms of what somebody can afford,” Simmonds said.

Tax Burdens
In places such as Texas, where price gains over the past few years have led to a dramatic rise in property taxes, landlords who scooped up single-family homes to lease out may also face pressure to sell, creating opportunities for first-time buyers.

The ballooning supply of rental units nationwide has also made it harder for landlords to recoup costs by charging higher rates. The US is expected to get 672,000 new apartments this year, the most since 1974, and a third of them will be in Texas and Florida alone, according to Carl Whitaker, head of research for RealPage.

Kyle Maness, a health coach in Huntsville, Texas — 70 miles (113 kilometers) north of Houston — is trying to sell a fixer-upper he bought for $90,000 in 2019 as an investment property to rent out. After spending $70,000 on repairs, he’s offering it up for $200,000, a price that would leave him with enough to pay some medical bills that have accumulated over the years, he said.

He’s now losing money on the house. Property taxes jumped about $400 a year since his purchase, and higher insurance costs added another few hundred dollars, he said. Also, many people in the area work in the state prison system and can’t afford rent increases.

“Salaries around here are capped,” he said. “So if the rent is $1,500 and the tenant moves out, you’re charging the next one $1,500.”

Lakefront Condo
In other areas, the strong housing market is encouraging sellers.

Bob Swainhart, a software executive, and his wife loved the lakefront condo they bought in Minneapolis in 2022, but at 950 square feet (88 square meters), it was too small, especially given that he works from home. They toyed with selling the unit in October, but with mortgage rates climbing toward 8% and reducing the pool of buyers, they held off.

In the meantime, they bought a four-bedroom house nearby that suits their needs better. They plan to list the condo this month at $450,000, and Swainhart said he’s confident they’ll get their price. 

“It seems like people are getting used to rates,” he said. “And since there’s so much pent-up demand from buyers with little inventory, I’m optimistic we’ll get the deal we want.”

In much of the country, buying is still a frustrating experience. But Orlando renter Symphani Soto said she’s feeling more hopeful this year.

The social media content creator moved from Los Angeles in 2021 to be closer to family and was eager to buy her first home. She dreamed big — four or five bedrooms and lots of space to host gatherings — but the tight supply and rising mortgage rates over the next couple of years pushed the few available listings out of her budget. 

With the new year came new possibilities as she saw inventory climbing, and she began documenting her hunt on TikTok. She’s giving herself room to be picky, and said she’ll continue to rent until she finds what she wants.

In a video tour of an open house last month, she commented that the bathroom’s barn doors and lighting were great. The granite countertops — not so much.

“Finding a new place with all the things is so hard!” she wrote in the video’s caption. “However, I know I’m going to find something that is perfect!” 

This article was provided by Bloomberg News.