Americans are remaining in their homes longer than ever before, thus tightening the lid on housing supply.

First American data indicates that homeownership tenure has risen 10% just from 2017 and has significantly climbed since the market crash of 2008.

“Tenure jumped to seven years during the aftermath of the crash between 2008 and 2016, and the most recent data from December 2018 shows that the median length of time someone lives in their home has increased 10% compared with a year ago.” First American Chief Economist Mark Fleming said.

But why are more and more homeowners deciding to stay put?

“Clearly, every homeowner’s decision to sell is different and influenced by personal and family preferences," Fleming said. “Yet, today, we are in a near-unprecedented homebody era, as increasing mortgage rates, low supply, low rates of foreclosure and tight credit have increased homeowner tenure to the highest level in 18 years.”

Fleming said lower interest rates are also a leading contributor to the supply and demand stalemate.

“Mortgage rates have been steadily increasing for the past year and the consensus among economists is mortgage rates will continue to rise, increasing from the current rate of 4.9 percent for a 30-year, fixed-rate mortgage to an average of 5 percent in 2019. The 30-year, fixed rate mortgage hasn’t hit five percent since 2009,” said Fleming.

“Homeowners with mortgage rates below the current rate may be reluctant to give them up for a higher rate, a phenomenon known as the ‘rate lock-in effect.’ There is less incentive to sell your home if borrowing the same amount from the bank at today’s rates will be more expensive than your existing monthly mortgage payment,” said Fleming. “As rates rise, many existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate.”

So, what does that mean for the housing market's future?

“While it is unlikely the influences that are currently driving tenure higher will change in the near term, more than half of all existing-homes are owned by baby boomers and the silent generation, who will eventually age out of homeownership,” Fleming said. “When that occurs, the problem may not be a lack of supply, but the exact opposite.”

Source: First American