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The Golden Handcuffs of Real Estate

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Paul George,

Golden Handcuffs used to be a term used when employers made it difficult for an employee or executive to leave a company by offering them incentives to keep them working for the company, most of which were just too good to pass up.  Even if an employee hated the work (which seems to be back in the marketplace), they could not afford to leave.  The salary, the bonuses, the time off was just too good.  Many employees stayed in jobs much longer than they wanted just because they didn’t think they could make as much money elsewhere.

How bad do things have to get before they quit? Just how much money is the current employer willing to pay to keep the employee there?

This same term, “Golden Handcuffs” has seeped into the real estate market.

Say you own a house and have a mortgage.  If you purchased in the last few years (which many people did) or just refinanced, your interest rate is anywhere between 2.75% and 4.5% on a 30-year fixed mortgage. 

During the boom selling seasons of the last few years, we had multiple offers on properties and many buyers jumped into purchasing a new home not necessarily out of need, but many times because of FOMO (fear of missing out).  Some of the buyers have not been able to adjust to a house they might have “settled” for.  I’m seeing a lot of that now.

Traditional reasons for selling are still the main factor for wanting to sell.  Downsizing, expansion of family, job transfers, etc. are still the main reasons for wanting to sell.

We have a shortage of homes on the market, and will have a shortage for the foreseeable future because sellers are “shackled” with the “golden handcuffs”.

He is a quick example.  I have a client who purchased a home in 2018.  The home is 3 bedrooms and 2.5 baths in Olentangy Schools. They have since had two kids with another on the way.  The oldest will start kindergarten next year and they want to stay in Olentangy Schools.  They refinanced after purchasing and have a 3.5% interest rate and about $100,000 equity in their home.  Their current payment is about $1500.  Now they need 4 bedrooms.  Their search for a home with four bedrooms starts in the $450,000 range, which is low for the district. With $100,000 down payment, a $350,000 mortgage with principle, interest, taxes and insurance, will mean a payment of about $3000 per month! They are “handcuffed” to stay where they are. They won’t be able to sell because they just cannot afford to go from $1500 per month to almost $3000 per month.

This is one of the reasons for the shortage.

This is keeping growing families from selling.  Empty nesters are not selling because they have lived in their home for 20 years and many no longer have a mortgage. If they sell, they have to pay the same or more for something maybe half the size, so they are not moving.  It’s a vicious cycle.

You would think with interest rates in the 7% range, things would slow down and prices might drop, but not here! Our area is poised for more growth. So much growth, prices will keep increasing, so many wanna be sellers are “stuck” with the Golden Handcuffs.

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