For these “stranded” homeowners, no amount of interest rate cuts will encourage them to list

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They own a home, and many of them might be willing to put their current home on the market – if only they could afford to buy the next one at the same time.

They are also one of the most coveted groups of potential clients in the real estate industry.

• People who already own a house but say it is so not in a sufficiently good financial position to buy at current prices and mortgage rates 32 percent of all homeowners surveyed in early January as part of Inman-Dig Insights’ latest consumer survey.
• Another one 11 percent of homeowners they indicated did don’t know whether their financial position was healthy enough to buy in the current market.

But when Intel surveyed this group as part of a broader survey of 3,000 U.S. consumers, a surprising finding emerged: These homeowners are actually less likely to be lured from the sidelines by falling interest rates than affluent consumers.

A significant portion of these homeowners – who are often aging but not yet retired – bought their home when they could afford it, and may even pay off their loans in the years that follow.

So why aren’t they in a position to buy, and what needs to change before they list?

Intel set out to answer these questions in this week’s report.

Stranded in place

For this report, Intel considers a homeowner “stranded” if they say they are financially unable to purchase a home in the current market, or don’t know if they are.

But what exactly does a stranded homeowner look like?

An obvious factor is that their income is lower.

• 58 percent of stranded homeowners reported household income less than $75,000 per yearcompared to 37 percent of homeowners who said they were financially able to buy.
• The share of stranded homeowners that earned less than $50,000 a year was more than twice that of the financially better positioned group.

But from here, this lower-income group split off in a few surprising directions.

• Stranded homeowners were more likely to be older 42 percent say they were at least 50 years old. Only 31 percent of the financially prepared group said the same.
• Stranded homeowners were also more likely to be white and less likely to report being black.

This contingent may be older, but does not consider itself fully retired – largely due to the limitations of the study itself.

Because this survey only reaches adults ages 24 to 65 who report working full-time or part-time, it excludes many people who consider themselves retired.

But for a variety of reasons, the stranded homeowner is likely to report that his financial prospects have deteriorated over the past year.

• Only 20 percent of stranded homeowners said their household was “financially better off” in January than a year ago. Another one 37 percent said there had been little change in their financial situation during that time, and the rest 43 percent said their finances had deteriorated.
• By comparison, homeowners who said they could buy if they wanted three times as likely to say that their financial position has improved over the past year, and a third as likely to report that they are in worse shape than a year ago.

For both groups, homeownership was once a feasible prospect. For the homeowners who can no longer afford to buy, much of that shift has happened recently. Some of that group may have gone from full-time employment to underemployment, or otherwise experienced a drop in income coupled with a rise in prices.

And while their predicament is affected by today’s high mortgage rates, it also cannot be solved by interest rate movements alone.

More than rates

One thing this group had in common was fairly predictable: the homeowners who still had loans on their properties were more likely to have taken out an ultra-cheap rate.

• 27 percent of stranded homeowners with a reported mortgage their rate was below 3.5 percentcompared to 19 percent of those who are financially able to buy.
• This is despite the fact that stranded homeowners were more likely to report that their loans were of the highest value 30 years, fixed interest rate variety, and you are less likely to have a Mortgage with a term of 15 years and a fixed interest rate for which lower rates generally apply.

But that is far from the whole picture. Many stranded homeowners are not “connected” to an ultra-cheap rate in any meaningful way.

• 36 percent of stranded homeowners say they own their home for free and without a mortgage, compared to owning it on their own 28 percent from better positioned owners.

The result? As a group, these homeowners are no more “stranded” by the current high rates than other groups. In fact, they seem less responsive to rate drops than a homeowner for whom the decision not to buy is more of a choice.

• 43 percent of stranded homebuyers who say they are unlikely to buy a home in the next 12 months, said this no drop in mortgage rates could convince them to change your mind.
• Only 32 percent of better-positioned owners opposed to buying said the same.

It’s important to note that these stranded homeowners were also no more likely to say they were unlikely to buy anything because they are happy where they live.

• 65 percent of stranded homeowners who are unlikely to make a purchase in the next 12 months say it’s because they are happy where they live now, just slightly less than 70 percent from reluctant buyers who felt they were financially capable.
• Instead, stranded homeowners were more likely than better-off counterparts to say home prices are too high (40 percent Unpleasant 25 percent), they don’t have enough for a down payment (18 percent Unpleasant 8 percent), they cannot qualify because of their credit (9 percent Unpleasant 3 percent), or they are ineligible due to their income (9 percent Unpleasant 2 percent).

To be clear, the rate-lock effect is real. It seems to mainly affect homeowners who are already in a healthy enough financial position to buy, but who may feel that now is not the smartest time to exchange their existing low interest rate for a higher one.

But for many other homeowners, the conditions that allowed them to purchase their current home no longer exist. And it will take more than falling interest rates for this tide to turn.

About Inman-Dig Insights’ consumer research

The Inman-Dig Insights consumer survey was conducted Jan. 7-8 to gauge Americans’ opinions and behaviors regarding home buying.

The study examined a diverse group of 3,000 American adults, who ranged in age from 24 to 65 and worked full- or part-time. Participants were selected based on a broadly representative breakdown by age, gender and region.

Statistical accuracy was maintained throughout the study and the results should be largely representative of the attitudes of American adults working full- or part-time. Both Inman and Dig Insights are majority owned by Toronto-based Beringer Capital.

Email Daniel Houston