Kevin O’Leary Explains the ‘Unprecedented’ Housing Markets in These 3 States
Kevin O’Leary, the no-nonsense investor known for his role on the TV show “Shark Tank,” recently talked about the unusual housing markets in Texas, Florida and Tennessee. He shared his thoughts with Newsweek about why these states are facing special challenges.
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Here’s why there are “unprecedented” housing markets in these three states, according to O’Leary.
Low Mortgage Rates Keep People in Their Homes
O’Leary explained that many homeowners have very low mortgage rates. This means they pay less interest on their home loans. If these people sell their homes now, they would have to get a new loan with a much higher interest rate.
“If those people were to sell their homes now, they would be facing a 7.5% mortgage versus 3.5%. They have no reason to sell their homes,” O’Leary said.
Because of this, fewer people are selling their homes in these states. Simply put, this means there aren’t many houses available for people who want to buy.
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Fast Rising Interest Rates
O’Leary talked about how the Federal Reserve, which helps control the U.S. economy, raised interest rates very quickly over the past two years. This was done to fight inflation, which is when prices for things go up quickly.
“That was unprecedented in terms of the speed,” O’Leary said about the rate increases.
These higher interest rates made it more expensive for people to borrow money to buy homes. Mortgage rates are now the highest they’ve been in about 20 years. In fact, according to Chase Bank, the current average 30-year fixed rate mortgage interest rate is now at whopping 6.78%.
People Moving From High-Tax States
Another thing affecting the housing markets in Texas, Florida and Tennessee is that wealthy retirees are moving there from states with high taxes. O’Leary mentioned that people are leaving states like California, Massachusetts, New Jersey and New York.
These people are moving to places like Miami and Austin, Texas, because it’s cheaper to live there. Unfortunately, when lots of people move to these places, it makes houses more expensive for everyone.
Changes in How People Work
O’Leary also talked about how the COVID-19 pandemic changed the way people work. More people can now work from home, so they’re moving to different places.
“If you can move a hundred miles out of the city or 200 miles away from where you work, you live in a better location for many reasons — better housing, better schools, a better lifestyle,” O’Leary said.
This means more people want to live in the South and in sunny states, which includes Texas, Florida and Tennessee.
High Mortgage Rates Didn’t Stop Buyers
O’Leary was surprised that even with high mortgage rates, people still want to buy homes. Usually, when it’s more expensive to borrow money, fewer people buy houses. But that’s not happening now.
“I don’t think anybody saw that coming,” he said. “It doubled or tripled the cost of mortgage and had no effect on demand.”
O’Leary explained that in the past, mortgage rates were often around 6 or 7 percent. So even though rates are high now, they’re not much higher than they’ve been before.
A Surprising Housing Market
O’Leary said he and other experts are surprised by how strong the housing market is, even with all these challenges.
“The majority of housing is extraordinarily strong through an unprecedented period of rate hikes, and so for those of us who analyze this every day as we try and invest money, that was a surprise,” O’Leary said.
The housing markets in Texas, Florida and Tennessee are facing unusual challenges. People with low mortgage rates don’t want to sell their homes. At the same time, people are moving to these states from more expensive places. And changes in how people work mean more people want to live in these areas.
Even though it’s more expensive to buy a home now because of high interest rates, people still want to buy houses in these states. This has created a situation that even experts like O’Leary find surprising and hard to explain.
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This article originally appeared on GOBankingRates.com: Kevin O’Leary Explains the ‘Unprecedented’ Housing Markets in These 3 States
