Property values have grown enough for households to establish equity and make a profit, but homeowners continue staying put, causing sales to underperform their potential.
Homeownership tenure shot up to 10 years, marking a 10% year-over-year increase in September, according to First American Financial Corp. For reference, median tenure length was about four years prior to the housing downturn in 2007, and jumped to seven years during the aftermath of the crash between 2008 and 2016.
"The recent dramatic spike in tenure length is reflected in the growing performance gap between market potential and actual existing-home sales, which is up 48% since the end of 2017," Mark Fleming, First American's chief economist, said in a press release.
"Homeowners are staying in their homes longer than ever, limiting supply and slowing home sales," he added.
The housing market is underperforming its potential by 7.2%, but the gap between actual existing-home sales and the market potential for home sales did narrow 1% from August to September. Still, the housing market has the potential to support 440,000 more sales.
The market potential for existing-home sales increased 3.5% from a year ago, a growth of 209,600 sales.
Despite gains in equity, homeowners are hesitant to sell out of fear of having to buy a house when property values and mortgage rates continue rising.
"Homeowners with mortgage rates below the current rate may be reluctant to give them up for a higher rate, a phenomenon known as the 'rate lock-in effect.' There is less incentive to sell your home if borrowing the same amount from the bank at today’s rates will be more expensive than your existing monthly mortgage payment," said Fleming.
"As rates rise, many existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate," he continued.
