By Rukmini Callimachi | The New York Times
On an earnings call last month, the CEO of online real estate brokerage Redfin was asked whether he had a contingency plan if interest rates did not come down. His answer was maybe a bit too frank.
“Great question,” Glenn Kelman, the CEO, began on the Aug. 6 call, “Plan B is to drink our own urine or our competitors’ blood.”
A little more than a minute later, he corrected himself, saying that he shouldn’t have used those exact words. But to the analysts on the call, his point was clear: The housing economy is in trouble, and a major reason has been soaring interest rates, which hit a high-water mark of 7.79% last fall.
Since then, the 30-year mortgage rate has dipped into the low 7s, then the high 6s, and as of last week, it fell to 6.35%. The drop — coupled with a “likely” rate cut by the Federal Reserve at its upcoming meeting in September — should spell good news for the housing economy, but a major structural problem remains. Close to 60% of homeowners have outstanding mortgages that are locked in at rates below 4%, according to recently released data from Redfin.
If a homeowner sold and bought a new home in a comparable neighborhood, they would forego a low rate for another that is at least 2.5 percentage points higher. For many homeowners, that simply doesn’t make sense — a phenomenon that economists call the “golden handcuffs.”
Although the recent dip in the mortgage rate has been significant — over 1 point in less than a year — I interviewed seven economists, as well as finance and real estate experts, who say it’s not enough.
“It’s a drop in the bucket,” said Sam Khater, chief economist of Freddie Mac.
A Sisyphean battle
The recent decrease in rates is equivalent to a 2% reduction in the price of the home, according to Daniel McCue, a senior research associate at the Harvard Joint Center for Housing Studies.
The math is as follows: Take a house priced at the national median, which…
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