Homeownership remains a fundamental American aspiration, but it’s becoming increasingly challenging. Factors like the pandemic, remote work trends and low mortgage rates have led to a surge in homebuyers, intensifying competition in housing markets nationwide. With limited inventory, the real estate industry attributes rising home sales to a sense of urgency — or the fear of missing out.

Finding a home to purchase has become challenging as homeowners are holding onto their properties due to historically low mortgage rates obtained during the pandemic. The usual spring surge in home listings didn’t materialize in May, with many homeowners choosing not to sell and instead keeping their homes to rent out when they move.

The housing market also faces increasing challenges, with surging unaffordability and an increasing percentage of mortgages underwater as prices decline in key markets, despite supply-and-demand fundamentals remaining out of whack.

Let discuss the concept of “golden handcuffs” and how they are becoming a reality for many Americans in the housing market.

What Are Golden Handcuffs?

In the late 1970s, “golden handcuffs” emerged as a term to describe why ambitious professionals remained in their jobs. Employers offered employees lucrative compensation, including stock options and benefits, which discouraged them from seeking other opportunities.

In 2023, “golden handcuffs” can more aplty be used as a term to describe why homeowners hesitate to move. Selling their homes could mean giving up their low 2% to 3% mortgage rates and taking on higher rates around 7% to 8%. Many potential move-up buyers find this rate increase too costly. This, combined with near-record-high housing prices in many key markets, has led to an unaffordability gap. This means many potential home sellers couldn’t sell even if they wanted to.

The Housing Market in 2023

In May 2023, Realtor.com reported 406,822 homes listed for sale, marking a 22.9% decline from May 2022 and a 30.4% drop from May 2019 before the pandemic.

The scarcity of available homes poses challenges for real estate professionals and mortgage brokers dependent on transaction volume. With new listings down 22.9% year-over-year, home sales remain subdued despite increased buyer activity. While real estate agents in high construction areas may fare better due to builder commissions, mortgage brokers face additional hurdles as the refinance market dwindles. The allure of refinancing diminishes when mortgage rates have risen from 2% to over 6%.

Consider that the decline in new listings impacts both supply and demand. When homeowners delay trading up, it reduces available homes for sale and potential buyers entering the market. To assess the supply-demand equilibrium accurately, focus on active listings or total inventory, as it provides a better gauge of market balance compared to new listings, which represent homes entering the market in a specific month.

Pros and Cons of Owning a House

Owning a home offers numerous advantages, such as building equity, tax benefits and stability. However, it also comes with disadvantages, like maintenance costs and the risk of negative equity during market downturns.

The Pros

Owning a home has several advantages. First, it allows you to build equity over time as your property appreciates in value, which can be used to finance various expenses. Second, with a fixed-rate mortgage, you can plan for predictable long-term expenses and enjoy reduced living costs once the home is paid off.

Additionally, homeownership offers privacy, autonomy to customize your space, and more living space compared to apartments or condos. It also comes with potential tax benefits, such as deductions for mortgage interest, insurance, points, and home office expenses. And, importantly, no one can evict you or tell you when you need to move — that’s your decision.

The Cons

Owning a house comes with notable downsides. First, it demands a significant upfront investment in the form of a down payment, often ranging from $12,000 to $80,000 for a median-priced home, even with financing. Second, it necessitates a long-term mortgage commitment, typically a 15-year or 30-year mortgage, requiring at least five years to start building equity.

Furthermore, the ongoing costs of homeownership are substantial, encompassing home insurance, property taxes, HOA fees, utilities, and maintenance, all of which must be factored into your budget annually. Additionally, homeownership limits mobility, making it challenging to adapt to career or lifestyle changes that involve relocation.

Despite the intense competition in today’s housing market, a majority of Americans do not have significant concerns about missing out on homeownership. Indeed, with the cost of owning now being significantly more expensive than renting in key markets, there’s likely to be less demand in the medium term for houses, even for those who can afford it.

The Data Says All

In 2023, the real estate market presents challenges for both sellers and buyers, with elevated home prices and mortgage rates driven by Federal Reserve interest rate hikes. According to a Realtor.com survey of 1,200 recent or potential home sellers, many are delaying listing their homes in anticipation of lower mortgage rates.

Over 85% of sellers intend to purchase a new home while selling their current one, resulting in the trade-off of their existing low mortgage rates for higher ones.

With 30-year fixed-rate mortgages averaging between 6% and 7%, a significant 82% of surveyed sellers express a sense of being “trapped” in their current homes due to their advantageous low mortgage rates.

Younger homeowners, burdened with higher mortgage debt, were particularly prone to feeling immobilized by their current mortgage rates. A striking 97% of Gen Z homeowners expressed this sentiment, while 87% of millennial and Gen X homeowners shared a similar view.

Final Thoughts

Americans continue to face challenges in the housing market, with low inventory and rising mortgage rates resulting in competitive bidding wars and limited options for potential buyers. The concept of “golden handcuffs” has become a reality for many homeowners, as they hesitate to sell their homes due to the fear of losing out on their historically low mortgage rates.

So whether you are a current homeowner or looking to enter the housing market, make sure to stay informed and plan accordingly for any potential challenges or opportunities that may arise. The housing market is constantly changing, and it’s important to prepare for whatever may come your way. So do your research, consult with professionals, and carefully consider all aspects before making any decisions regarding homeownership in 2023. Good luck!

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.