Thawing of the Housing Market: Insights from JPMorgan

JPMorgan Asset Management suggests that the housing market is beginning to thaw, attributing this shift to an increasing number of sellers who were previously “mortgage-locked” but are now listing their homes for sale.

Understanding the Mortgage Lock-In Effect

The “mortgage lock-in” effect refers to a scenario where existing homeowners are hesitant to sell their properties because they secured lower mortgage rates in the past. This phenomenon significantly slowed housing activity throughout 2023, with home sales experiencing an 18.3% decline during that period, as reported by Redfin.

Signs of Easing Grip

Recent data indicates a positive trend, with home sales showing an upward trajectory. February saw a notable 9.5% increase in existing home sales, accompanied by a 5.9% rise in existing home inventory compared to the previous month, according to the National Association of Realtors.

Factors Encouraging Sellers

Real estate economists suggest that homeowners may be more inclined to enter the housing market now, recognizing that high mortgage rates are likely here to stay. This growing willingness to sell is contributing to much-needed inventory, complemented by approximately 1.6 million homes currently under construction, as estimated by JPMorgan. Additionally, housing completions surged to 1.7 million in February, marking a 15.6% increase compared to the previous year, as indicated by Census data.

Implications for Homebuyers

The shift in the housing market dynamics brings positive implications for homebuyers. The imbalance between supply and demand, which has challenged buyers for years, may begin to alleviate. The scarcity of options and limited inventory have been significant factors driving up home prices, with the median US home price reaching $412,227 in February, according to Redfin.

Gradual Recovery Expected

JPMorgan’s Stephanie Aliaga notes that while the housing sector shows signs of improvement, the recovery is expected to be gradual. This sentiment aligns with the views of other real estate economists who anticipate that it could take several years for supply to catch up with demand fully. Researchers from the Federal Housing Finance Agency caution that the mortgage lock-in effect may persist for an extended period unless there is a substantial decrease in mortgage rates.