How low do mortgage rates need to go for sellers to want to list?

Borrowers say a 5% mortgage rate is their make-or-break point to stay put or re-enter the pricey housing market, according to a Zillow survey.

Homeowners with rates above 5% are twice as likely to consider selling in the next three years compared to their lower-paying counterparts, the firm found. While moving would likely send those homeowners' costs soaring, buyers are mitigating expenses by purchasing mortgage points and pursuing smaller homes. 

"Many homeowners will move only for major life events, like a new baby or retirement," said Orphe Divounguy, senior economist at Zillow Home Loans, in a press release. "Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices."  

The survey of 1,815 homeowners who were planning to sell, conducted in the first two weeks of June, found 47% had a mortgage rate above 5%. That coincides with the "lock-in" effect Fannie Mae described earlier this month, as just 21% of homeowners with mortgage rates below 5% are selling.

The 5% mortgage rate tipping point in the second quarter is slightly higher than it has been over the previous year, according to Zillow. In the prior four quarters, borrowers said a stay-or-sell tipping point was somewhere between 4% to 5%. 

Mortgage rates have floated above 6% since last September, dampening homebuying demand. Among survey respondents, 80% of borrowers said they had a rate below 5%, while almost a third reported a mortgage rate below 3%.

In all, less than half of homeowners, or 42%, said mortgage rate changes influence their decision to move, Zillow found. Rate fluctuations still have a noticeable impact, the company said, citing university researchers in April who said a single percentage point increase in mortgage rates sends moving rates down 9%. 

Borrowers deciding to move can typically pay 1% of the loan amount to bring their mortgage rate down by 0.25%. Almost half of conventional primary mortgage borrowers bought points last year, and the discounts skewed slightly toward middle and higher-priced loans, Zillow previously reported. The company said home prices hit a record-high $350,000 in June.