ICE Mortgage Monitor: Trading Up to a 25% More Expensive Home Would More Than Double the Average Mortgage Holder’s Payment
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From 2000 to 2022, upgrading to a 25% more expensive home would have required the average homeowner to increase their principal and interest payment by roughly 40%, or about
$400 per month -
Today, that same trade-up buyer’s payment would increase by an average of
$1,384 per month, a 103% jump that highlights the real-world pressures keeping current mortgage holders “locked in” to their homes - Simply giving up their current rate to move across the street to an equivalently priced home in today’s market would result in a nearly 40% increase in P&I – roughly as much as the historical trade-up cost
- Homeowners who took out mortgages when rates were near record lows in 2020 and 2021 face an even steeper “move across the street” cost, with such a lateral move requiring a 60% higher monthly payment
- Trading up for these borrowers – who account for two out of every five active mortgages – would take a 132% increase in monthly P&I
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The trade-up cost – and the associated lock-in effect – varies significantly across geographies, from a 72% payment increase on the low end in
Buffalo to more than 140% inLos Angeles andSan Jose -
Inventory remains constricted, but improved, as 65% of major
U.S. markets have more homes available for sale today than at this time last year -
Lower interest rates in late Q4 and early Q1 led to home sales in February hitting their highest adjusted level since
March 2023 - The February ICE Home Price Index showed strength in the market, with adjusted home prices rising by +0.43%, up from +0.33% in January, which is equivalent to a +5.3% seasonally adjusted annualized rate
There are many headwinds facing the would-be seller in today’s market, making their existing mortgage payment particularly attractive in comparison. While this has been the case for some time, according to
"After American mortgage holders secured some of the lowest first lien rates ever and benefited from record home price growth on top of that, we wanted to quantify just how locked-in folks truly are and what kind of rate declines would be needed to shake some of that inventory loose," said Walden. "Leveraging the ICE Home Price Index and our loan level mortgage data, we looked at how much it would cost the average homeowner with a mortgage to trade up to a 25% more expensive home in today's market – or to simply move across the street, for that matter, into a home identical to their own. The results were bracing, to say the least.
“That average homeowner’s mortgage payment would more than double, to gain just 25% in property value – hardly an entertaining proposition. That said, you’d be hard-pressed to find a more vivid illustration of the lock-in effect that’s kept for sale inventory in a hole for the last few years. Simply giving up their current rate to move across the street to an equivalently priced home in today’s market would result in a nearly 40% increase in P&I, an average of
Though inventory remains constricted, there have been some signs of improvement. While still lagging 40% below pre-pandemic averages, February’s inventory deficit was the shallowest of any February since 2020. Inventory levels rose in 60 of the 100 largest
“After closing out 2023 at an 11-year low, home sales have begun to improve over the last two months,” Walden added. “In fact, lower interest rates in late Q4 and early Q1 led to February home sales hitting their highest adjusted level since
The lock-in effect on inventory varies significantly across geographies, with the cost to give up an existing mortgage and buy a 25% more expensive home ranging from a low of a 72% payment increase in
“Mortgage rates need to come down to dislodge the lock-in effect,” Walden concluded. “Since most factors influencing 30-year rates are out of lenders’ control, they need to be able to find ways to compress spreads without simultaneously compressing their own profit margins. That’s key to our mission at ICE – identifying and eliminating inefficiencies in housing finance through technology, while finding smarter, faster, cheaper and more transparent ways to originate loans and increase liquidity."
Much more information on these and other topics can be found in this month’s Mortgage Monitor.
About Mortgage Monitor
ICE manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the ICE Home Price Index and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of
ICE’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.icemortgagetechnology.com/resources/data-reports
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