Property Transfers: 'Mortgage-lockup effect' impacts availability of homes on the market

This article if the first in a three-part series examining the challenges for entry-level homebuyers.

In the market for your first home? Feel like even a smaller, entry-level house is out of reach?

You’re not alone. Between limited supply, higher mortgage rates, and fewer Federal Housing Administration (FHA)-backed loans issued, first-time buyers looking to enter the market continue to play the waiting game.

Alison Harris, leader of the Harris Home Team at Keller Williams Realty Coastal Area Partners, and Michael Caputo, mortgage advisor with First Coast Mortgage, broke the situation down for the Savannah Morning News.

Harris, who loves a spreadsheet, conducted a year-over-year analysis of home sales in Bryan, Chatham and Effingham counties between 2018 and 2024 to-date. She and Caputo agreed that within that range, 2019 was “our last normal feeling year with regular seasonality, with predictability.”

Once the COVID-19 pandemic hit in March 2020, people’s home needs changed “pretty seismically,” explained Harris. “The wheels kind of came off the bus.”

Using data from the Multiple Listing Service (MLS), Harris was able to show that between 2019 and 2023, the total number and percentage of homes sales using government-backed loans dropped ― the ones most used by first-time homebuyers ― in Bryan County by 32%, 23% in Chatham County, and 18% in Effingham County.

The number of total home sales in the three-county region skyrocketed in 2020 and 2021 to nearly 12,000 due to the influx of people moving from larger, more expensive metropolitan areas into Savannah and surrounding communities because of the ability to work remotely, buy more property for less cash, and because of the opportunity for revenue-generating investment properties in a tourist-rich area.

That overheated environment has, in turn, fueled a long-lasting sellers’ market where multiple bids without contingencies have led to increased market values, even in neighborhoods once considered transitional, the kinds of neighborhoods where first-time homebuyers found their starter homes.

Sales dropped to just over 9,000 in 2023, however, because fewer homes are on the market and what Caputo calls the "mortgage-lockup effect."

”Seventy-five percent of all loans in Georgia are at or below 5%,” explained Caputo, and with people sitting on such low rates, there is no incentive to move and take on a higher interest rate on a more expensive house. Current FHA loan rates hover around 7% and conventional-rate mortgages for a 30-year, fixed at or near 8%.

Harris said more homeowners are renovating or adding on, instead.

“Or when they do move,” interjected Caputo, “they don’t list and sell it. They keep it as a rental because the cash flow is amazing.”

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This article originally appeared on Savannah Morning News: bryan chatham effingham counties property transfers 05-01-24