Jul 26, 2023 - Real Estate

How "golden handcuffs" locked up Phoenix's housing market

Illustration of a handcuff on a keychain in a lock

Illustration: Sarah Grillo/Axios

Roughly 67% of Arizona homeowners with mortgages have a rate below 4%, per Redfin data shared with Axios. That's locking homeowners in place and leaving hopeful buyers with few homes to choose from.

Between the lines: Mortgage holders are experiencing the "golden handcuffs" phenomenon: They might have a great rate now, but likely can't move without spending a lot, explains Redfin chief economist Daryl Fairweather.

Why it matters: The interest rate impact is making it even harder for would-be homeowners to break into a housing market that's been plagued by supply shortages and skyrocketing prices.

Zoom in: Phoenix has had a housing shortage for years, and homes flew off the market for well over asking prices when interest rates were historically low in 2021 and early 2022.

  • The Valley is seeing even fewer homes come on the market because of the golden handcuff effect, but there are also fewer prospective buyers because interest rates have priced them out.
  • That's lowered home prices a bit but also led to fewer transactions.
  • For example: 2,728 homes sold in June 2021, compared with 1,644 last month, per Redfin.
Monthly mortgage payment in Phoenix metro area
Data: Redfin; Chart: Alice Feng/Axios Visuals

By the numbers: Only about 6% of current Arizona mortgage holders have a rate above 6%.

  • By comparison, a mortgage on a $400,000 home with a 3% interest rate equates to about a $1,900 monthly payment. A 6.4% interest rate (the average in May) spikes the monthly payment to $2,590.

Zoom out: It's not just a local issue. Nine in 10 U.S. homeowners secured mortgage rates below 6% as of late 2022, per the new Redfin report.

  • Meanwhile, mortgage rates have swung between 6% and 7% nationally in recent months.

Be smart: Buyers are also exploring adjustable-rate mortgages or buydowns in hopes of a lower monthly payment, Fairweather says.

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