The housing and mortgage market has been nothing short of a roller coaster since 2020. During the pandemic, home prices temporarily fell but they surged to new highs after the Federal Reserve cut federal fund rates to near zero. This, in turn, dragged down mortgage rates to as low as 2.65% in January 2021, the lowest 30-year rate ever, according to The Mortgage Reports.
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For the next two years, individuals and investors alike bought up seemingly everything in sight, eager to snag a mortgage rate below 4% or even below 3%. However, as prices boomed, contributing to the highest inflation rates in 40 years, the Fed stepped in again to raise interest rates resulting in mortgage rates jumping to 7%.
This put both existing homeowners and prospective buyers in a bind. Existing homeowners became reluctant to sell, as few would want to trade a 3% or 4% mortgage rate for one above 7%. Meanwhile, new buyers were adversely affected by unmanageable mortgage payment rates.
Despite this, there are signs that the housing market may finally be loosening up. Home prices in some markets have stopped increasing and the Fed began cutting interest rates in late 2024 with the potential for more in 2025. This may be part of the reason that 19% of homeowners indicated in a recent Zillow survey that they are considering selling within three years.
Assuming the data is correct, what could this mean for the housing market over the next few years?
Things May Be Slowly Changing
One of the most compelling data points from the Zillow survey is that 11% of respondents have a mortgage rate above 6%. This is nearly double the percentage from the Q4 2022 survey two years prior.
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This is significant because one of the primary reasons why homeowners have been reluctant to sell is that their current mortgage rate is so low. However, those with a mortgage rate above 6% won’t generally have this obstacle, as they could likely get a similar rate in today’s market. And if the Fed continues to lower interest rates in 2025 and 2026, the floodgates could open as these homeowners could now access mortgage rates below what they are currently paying.
Supply and Demand in the Housing Market
One major reason for the recent increase in home prices across America is that there hasn’t been sufficient inventory to meet demand. As supply and demand are essential factors in determining the price of anything, home prices will likely continue to rise until more sellers appear.
While not indicative of a flood of homes on the market, the fact that 19% of homeowners are willing to sell within the next three years could make an incremental impact on supply.
Of course, most homeowners don’t generally sell their homes without buying a new one. While there are obvious exceptions, for the most part, sellers quickly become buyers. In the Zillow survey, 56% of potential sellers said they “found other homes they prefer over their current one.” This means they are likely to roll over their sales proceeds into a new home, keeping the net supply at the same level.
However, things may be different this time. The Zillow data also shows that 49% of respondents indicated “they plan to sell their home for a profit or use the equity for another purpose.”
If that’s the case, at least some of that money won’t return to the housing market, helping boost supply.
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This article originally appeared on GOBankingRates.com: 19% of Homeowners Are Considering Selling Within 3 Years — What That Could Mean for the Housing Market
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