The average mortgage rate in the U.S. is now over 7%, its highest level in more than 20 years. That has some homeowners feeling locked in, tethered to their low interest rates and unable to move.
AILSA CHANG, HOST:
The average mortgage rate on a home in the U.S is over 7%. That’s the highest level in more than two decades. As a result, a lot of homeowners are staying put in their current homes instead of buying a new place and taking out a mortgage with a much higher rate. Wailin Wong and Darian Woods from our daily economics show The Indicator From Planet Money explain how that decision impacts the entire housing market.
DARIAN WOODS, BYLINE: The vast majority of homeowners in the U.S. have a 30-year fixed mortgage. They get one interest rate at the time they borrow the money, and that rate stays the same for 30 years. And that makes the U.S. mortgage market pretty unique.
WAILIN WONG, BYLINE: And there are benefits to the 30-year fixed mortgage. Julia Fonseca is a professor at the Gies College of Business at the University of Illinois at Urbana-Champaign. She says the 30-year fixed mortgage insulates people against interest rate increases, but when rates do go up and a homeowner wants to move…
JULIA FONSECA: This is going to add to the financial cost of moving because you have to pay off this loan at a very low rate and take out a new one at a much higher rate. We wanted to ask, what does that do to borrowers? Why does this matter? And I think one reason why we should definitely care about this is it affects other people.
WOODS: Julia researched these effects for a working paper released earlier this year. She co-authored the paper with Lu Liu, a professor at the Wharton School at the University of Pennsylvania. And they studied data on millions of mortgage borrowers between 2010 and 2018. They were looking at the impact of mortgage rate lock-in on housing markets and labor markets.
WONG: In a healthy housing…
Read the full article here
Leave a Reply