WSJ - The Downside of Low Interest Rates: Reluctant Home Sellers

From the Wall Street Journal online:

Historically low interest rates likely will haunt the U.S. housing market by deterring homeowners from selling in future years after rates rise, housing economists say.

Economists theorize that, in the so-called rate lockdown effect, homeowners that landed mortgages in recent years with rates 3.5% to 4% might be reluctant to sell their homes in the coming years, which would cause them to forfeit the rock-bottom rates on their existing mortgages.

Rates for 30-year, fixed-rate mortgages, now at 4.2%, are widely forecast to reach 5% by next year....

“We’ve locked all of these people into these low rates, mostly in 30-year fixed mortgages,” said Mark Fleming, chief economist at real estate data firm CoreLogic Inc., at the conference.

“There’s a huge disincentive … to sell at any point in the future. My expectation is that housing turnover rates will be down significantly in the future due to this rate lockout effect.”

Earlier this year, researchers at DePaul University’s Institute for Housing Studies in Chicago issued a paper on the lockdown effect.

Their projection: Even though rising prices in recent years have brought more home sellers into the market, any steep rise in interest rates likely would nullify that influx by causing more homeowners to want to stay put and thus keep their low interest rates.

Another potential effect of the lockdown effect: An increase in novice landlords. Some economists say homeowners who must move might opt to hang onto their former home and rent it out to keep the low interest rate on the mortgage...
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Link: http://blogs.wsj.com/economics/2014/06/13/the-downside-of-low-interest-rates-reluctant-home-sellers/