1) People want to buy them, but the interest rates are too high.
2) And some of those people live in LZ1 or LZ2, where their homes won't sell because buyers can't get insurance and also because interest rates are too high. So they are stuck.
Some people selling in HPP can't lower their prices because if they did, it wouldn't cover their first and/or second mortgages.
Even if we DID want to move to HPP, which we don't, there is no way we could trade our existing 3.x% mortgage for a 7% one.
Basically, everybody is stucked. This has been the case for well over a year on the mainland, and it's finally caught up to us.
Here's a quick breakdown of a 3% and 7% interest rate on a $500k home:
Monthly Payment Difference
At 3% Interest Rate: $2,108.02
At 7% Interest Rate: $3,326.51
This means that at a 7% interest rate, the monthly payment is $1,218.49 higher than at a 3% interest rate.
Total Payment Over the Loan Term
At 3% Interest Rate: $2,108.02 × 360 = $758,887.20
At 7% Interest Rate: $3,326.51 × 360 = $1,197,543.60
The total cost difference over 30 years= $438,656.40
Of course, lenders only look at "monthly payments". And they would be almost 58% higher today than they were a few years ago on the same $500,000 house. Has your income gone up 58% a month? Mine hasn't.
Conclusion
If someone can afford a $500,000 home at a 3% interest rate, they could only afford approximately a $234,713 home at a 7% interest rate, keeping the monthly payment the same at around $2,108.02. Have the HPP home prices dropped 50+%? No, so they are sitting on the market. Can sellers afford to drop the price? And then.... trade their 3% mortgage for a 7% mortgage and then what... buy a $100k home somewhere? No, they can't afford it.
Meanwhile, the cost of homeowners insurance in LZ2 has gone up approximately 1,100%. Has your income gone up 1,100%? Yeah, mine neither.
Basically, our housing market had been insulated from what is going on everywhere else because of cash buyers. People who don't need to pay the bank $1.2M for a $500k house. But those cash buyers seem to be running out of cash.
Not to overwhelm with information (I know, too late) the way that home payments work is that they are front-loaded with interest. To simplify it, your first mortgage payment is 100% interest and your last payment 30 years later is 100% principal. Each month it changes a little bit to where those two figures get closer to each other over 360 recalculations of compounding interest. So after a full year of making home payments, you haven't paid 1/30th of your principal, you've paid almost none of it! The principal-heavy payments are closer to the end of the loan* So homeowners can't turn around and sell a home they just bought without getting kicked in the teeth unless it's value has appreciated substantially to reflect their $20k (or whatever) they ate in closing costs to get the loan.
* This is why its important to make as many additional principal payments as humanly possible. Even just making a few a year, especially during the front end of the loan, can shorten the loan life dramatically.
2) And some of those people live in LZ1 or LZ2, where their homes won't sell because buyers can't get insurance and also because interest rates are too high. So they are stuck.
Some people selling in HPP can't lower their prices because if they did, it wouldn't cover their first and/or second mortgages.
Even if we DID want to move to HPP, which we don't, there is no way we could trade our existing 3.x% mortgage for a 7% one.
Basically, everybody is stucked. This has been the case for well over a year on the mainland, and it's finally caught up to us.
Here's a quick breakdown of a 3% and 7% interest rate on a $500k home:
Monthly Payment Difference
At 3% Interest Rate: $2,108.02
At 7% Interest Rate: $3,326.51
This means that at a 7% interest rate, the monthly payment is $1,218.49 higher than at a 3% interest rate.
Total Payment Over the Loan Term
At 3% Interest Rate: $2,108.02 × 360 = $758,887.20
At 7% Interest Rate: $3,326.51 × 360 = $1,197,543.60
The total cost difference over 30 years= $438,656.40
Of course, lenders only look at "monthly payments". And they would be almost 58% higher today than they were a few years ago on the same $500,000 house. Has your income gone up 58% a month? Mine hasn't.
Conclusion
If someone can afford a $500,000 home at a 3% interest rate, they could only afford approximately a $234,713 home at a 7% interest rate, keeping the monthly payment the same at around $2,108.02. Have the HPP home prices dropped 50+%? No, so they are sitting on the market. Can sellers afford to drop the price? And then.... trade their 3% mortgage for a 7% mortgage and then what... buy a $100k home somewhere? No, they can't afford it.
Meanwhile, the cost of homeowners insurance in LZ2 has gone up approximately 1,100%. Has your income gone up 1,100%? Yeah, mine neither.
Basically, our housing market had been insulated from what is going on everywhere else because of cash buyers. People who don't need to pay the bank $1.2M for a $500k house. But those cash buyers seem to be running out of cash.
Not to overwhelm with information (I know, too late) the way that home payments work is that they are front-loaded with interest. To simplify it, your first mortgage payment is 100% interest and your last payment 30 years later is 100% principal. Each month it changes a little bit to where those two figures get closer to each other over 360 recalculations of compounding interest. So after a full year of making home payments, you haven't paid 1/30th of your principal, you've paid almost none of it! The principal-heavy payments are closer to the end of the loan* So homeowners can't turn around and sell a home they just bought without getting kicked in the teeth unless it's value has appreciated substantially to reflect their $20k (or whatever) they ate in closing costs to get the loan.
* This is why its important to make as many additional principal payments as humanly possible. Even just making a few a year, especially during the front end of the loan, can shorten the loan life dramatically.