For These ‘Stranded’ Homeowners, No Rate Cut Will Coax Them To List

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They own a home, and many of them might be open to listing their current residence — if only they could afford to buy the next one at the same time.

They’re also one of the real estate industry’s most coveted groups of potential clients.

• People who already own a home but say they are not in a good enough financial position to buy at today’s prices and mortgage rates made up 32 percent of all homeowners polled in early January as part of the latest Inman-Dig Insights consumer survey. 
• Another 11 percent of homeowners indicated they did not know whether their financial footing was sound enough to buy in today’s market.

But when Intel polled this group amid a broader survey of 3,000 U.S. consumers, a surprising finding emerged: These homeowners are actually less inclined to be lured off the sidelines by falling rates than better-off consumers are.

A significant share of these homeowners — who tend to skew older, but are not yet retired — bought their homes when they could afford them, and maybe even paid off their loan in the years since.

So why aren’t they in a position to buy, and what has to change before they’ll list?

Intel set out to answer these questions in this week’s report.

Stranded in place

For this report, Intel considers a homeowner “stranded” if they say they are either not financially equipped to buy a home in today’s market, or don’t know whether they are.

But what exactly does a stranded homeowner look like?

One obvious factor is that their incomes are lower.

• 58 percent of stranded homeowners reported a household income below $75,000 a year, compared to 37 percent of homeowners who said they are financially able to buy.
• The share of stranded homeowners who made less than $50,000 a year was more than twice that of the more financially well positioned group.

But from here, this lower-income group split off in a few surprising directions.

• Stranded homeowners were more likely to be older, with 42 percent saying they were at least 50 years old. Only 31 percent of the financially ready group said the same.
• Stranded homeowners were also likelier to be white, and less likely to report being Black.

This contingent might be a bit older, but it does not consider itself fully retired — largely because of the constraints of the study itself.

Because this survey only reaches adults from the ages of 24 through 65 who say they have a full- or part-time job, it excludes many individuals who consider themselves retired.

But for different reasons, the stranded homeowner is likely to report that their financial prospects have worsened over the past year.

• Only 20 percent of stranded homeowners reported their household was “better off financially” in January than it was a year ago. Another 37 percent said there had been little change in their financial situation over that time, and the remaining 43 percent said their finances had worsened.
• By comparison, homeowners who said they were able to buy if they wanted to were three times as likely to say their financial position had improved over the past year, and one-third as likely to report being worse off than a year ago.

For both groups, homeownership was once an attainable prospect. For the homeowners who can no longer afford to buy, much of that shift happened recently. Some of that group may have gone from fully employed to underemployed, or otherwise experienced a drop in income coupled with a hike in prices.

And while their predicament is impacted by today’s high mortgage rates, it’s also not one that can be solved by rate movement alone.

More than rates

One thing this group had in common was fairly predictable: The homeowners who still have loans on their properties were more likely to have locked in an ultra-cheap rate.

• 27 percent of stranded homeowners with a mortgage reported their rate was below 3.5 percent, compared to 19 percent of those who are financially able to purchase.
• This is despite the fact that stranded homeowners were likelier to report their loan was of the 30-year, fixed-rate variety, and less likely to report having a 15-year, fixed-rate mortgage that typically comes with lower rates.

But that’s far from the whole picture. Many stranded homeowners are not “locked in” to an ultra-cheap rate in any meaningful way.

• 36 percent of stranded homeowners said they own their home free and clear without a mortgage, compared to only 28 percent of better-positioned owners.

The result? These homeowners as a group are no more “stranded” by today’s high rates than other groups. In fact, they appear to be less responsive to rate drops than a homeowner for whom the decision not to buy is more of an elective choice.

• 43 percent of stranded homebuyers who say they are unlikely to buy a home in the next 12 months said that no decline in mortgage rates would persuade them to change their mind. 
• Only 32 percent of better-positioned owners who were leaning against buying said the same.

It’s important to note that these stranded homeowners were also no more likely to say that they were unlikely to buy because they are happy where they live.

• 65 percent of stranded homeowners who are unlikely to buy in the next 12 months said that it was because they are happy where they live now, just slightly less than the 70 percent of reluctant buyers who felt that they were financially able.
• Instead, stranded homeowners were more likely than better-off counterparts to say that home prices are too high (40 percent to 25 percent), they don’t have enough for a down payment (18 percent to 8 percent), they can’t qualify due to their credit (9 percent to 3 percent), or they can’t qualify due to their income (9 percent to 2 percent).

To be clear, the rate-lock effect is real. It just appears to be especially influential to homeowners who are already in a sound enough financial position to buy, but may feel that now isn’t the smartest time to swap their existing low rate for a higher one.

But for many other homeowners, the conditions that enabled them to purchase their current home are no longer in place. And it will take more than falling rates for that to turn around.

About the Inman-Dig Insights Consumer Survey

The Inman-Dig Insights consumer survey was conducted from Jan. 7 through Jan. 8 to gauge the opinions and behaviors of Americans related to homebuying. 

The survey sampled a diverse group of 3,000 American adults, who ranged in age from 24 to 65 and were employed either full-time or part-time. The participants were selected to produce a broadly representative breakdown by age, gender and region.

Statistical rigor was maintained throughout the study, and the results should be largely representative of attitudes held by U.S. adults with full- or part-time jobs. Both Inman and Dig Insights are majority-owned by Toronto-based Beringer Capital.

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