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Photo collage of a house with a  Not For Sale  sign
Money; Getty Images

Homeowners are increasingly reluctant to put up the for-sale sign.

Despite two-plus years of home price growth, new home listings are slumping. Why? Experts say, a key reason is that the vast majority of current homeowners have mortgage rates well below today’s 6% level.

Millions of homeowners locked in favorable rates by purchasing homes or refinancing existing mortgages when rates were super-low in 2020 and 2021. As a result, a whooping 85% of homeowners with mortgages now have interest rates below 5%, according to a Redfin report.

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In an analysis of four markets, the brokerage found that owners with rates under 3.5% were 7.6% less likely to list their homes in August than owners with mortgage rates over 3.5%.

It is easy to see why.

Now that rates are rising, buying a new home would mean having to take out a new mortgage with a worse rate. Between the jump in rates and rising prices, the monthly mortgage payment on a typical new home has risen 42% in the last year, Redfin said.

"The good news is that people who already own homes have locked in relatively low mortgage payments," said Redfin Deputy Chief Economist Taylor Marr in the report. "The bad news is that homeownership is moving further out of reach for other folks as rising rates, elevated home prices and the persisting housing shortage make buying a house more expensive."

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For buyers, fewer sellers means fewer options

Seller hesitation is one key reason why the number of new listings was down 19% for the four week period ending Sept. 11 as compared to the same time last year.

The total inventory of unsold existing homes decreased 1.5% from July to August, according to the National Association of Realtors. At the end of August, inventory was 1.28 million homes, which is just a 3.2-month supply at the current paces of home sales.

"Inventory will remain tight in the coming months and even for the next couple of years," said Lawrence Yun, NAR’s chief economist. "Some homeowners are unwilling to trade up or trade down after locking in historically-low mortgage rates in recent years."

Home values are up more than 40% since before the pandemic, but declines in the last two months are also factoring into homeowners’ decisions not to sell, Redfin said.

"Many homeowners are hesitant to put their house up for sale at a time when the market is slowing and home prices are starting to fall in some areas," the company said.

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