Exploring the recent mortgage interest rates reveals how they influence the housing market and consumer behavior. Since November 2018, a significant number of homeowners have refinanced to benefit from lower rates, a point I’ve emphasized since 2009.
Interestingly, over 90% of mortgages in the U.S. have an interest rate under 5%, suggesting less concern about a housing market downturn due to rising rates. Most homeowners aren’t affected by the increasing rates as their mortgage payments stay the same.
Regarding adjustable-rate mortgages (ARMs), they comprise about 5% of home loans, though this is inching towards 10%. ARM holders might feel anxious, but it’s likely that by the time their fixed-rate period ends, the rates will have decreased again, considering the long-term trend of falling interest rates.
Breakdown of Mortgages by Interest Rate
A chart by Black Knight and Axios Visuals shows that most mortgages in the U.S. (53.585 million) have rates below 4%. Here’s a breakdown of mortgages at various interest rates:
- Below 2%: 0.53%
- 2% – 2.5%: 8.8%
- 2.5% – 3%: 24.5%
- 3% – 3.5%: 21.1%
- 3.5% – 4%: 17.7%
- 4% – 4.5%: 11%
- 4.5% – 5%: 6.7%
- 5% – 5.5%: 2.8%
- 5.5% – 6%: 2%
- 6% – 6.5%: 1.9%
- Above 6.5%: 2.9%
Additionally, about 40% of American homeowners own their homes outright.
Analysis of Mortgage Percentages
A minority, 9.6%, have rates above 5%, and those with rates over 6% might be suffering from poor credit or outdated mortgages. The majority, 63.3%, enjoy rates between 2.5% and 4%.
Increasing Homeownership Tenure
With the rise in mortgage rates, we expect the average homeownership tenure, which was already increasing, to continue to lengthen. Homeowners are more likely to hold onto their low-rate mortgages longer. This is compounded by the increased value people place on their homes as work and life spaces since the pandemic. Thus, more capital is expected to flow into real estate over time.
Average U.S. Homeownership Tenure
The homeownership tenure varies by source and location, ranging from around 6.9 years in Atlanta to 14 years in cities like Los Angeles, San Francisco, and San Diego. The national average is around 8 years according to ATTOM Data Solutions, while Redfin suggests it’s about 13.2 years.
Implications of Higher Tenure
Higher homeownership tenure implies a lower supply in the housing market. This, coupled with robust demand, is likely to keep home prices elevated. Single-family home inventory remains low, reinforcing this trend.
Affordability of Existing Homeownership
Most homeowners, as per Fannie Mae’s survey, find their current homes affordable, indicating that moves will likely be driven more by necessity or financial capability than by market rates.
Investment Opportunities in Real Estate
The combination of rising rents and property values makes real estate a lucrative long-term investment. I’ve personally diversified into heartland real estate since 2016, leveraging real estate crowdfunding platforms like Fundrise for broad exposure and CrowdStreet for more targeted investments in growing secondary cities.
The Bottom Line
The current mortgage landscape, characterized by low rates for most homeowners, is leading to longer homeownership tenures. This trend, combined with the high value placed on homes as personal and work spaces, suggests a stable and potentially growing real estate market. For investors, this presents continued opportunities in residential and industrial properties, particularly in regions with favorable demographic trends.
