Shark Tank's Kevin O'Leary gives stark warning about housing market in these three states
Shark Tank's Kevin O'Leary has singled out the three states where homeowners are reluctant to sell their properties.
Those in Texas, Florida, and Tennessee are currently enjoying low mortgage rates and would likely double their payments if they moved to another state.
Over the last two years, the U.S. Federal Reserve's hiked interest rates in an effort to curb inflation.
In the process, mortgage rates have been pushed to their highest levels in four decades.
This means higher housing costs for buyers while home prices continue to skyrocket.
Homeowners in Texas , Florida , and Tennessee have become reluctant to sell their properties because they're on low mortgage rates and don't want to borrow at current far higher rates. Pictured, South Beach, Miami, Florida
Homeowners that were locked in lower mortgage rates are deterred from selling and facing new loans at over 7 percent interest, investor and Shark Tank personality Kevin O'Leary said
Homeowners that were locked in to lower mortgage rates are essentially deterred from selling and facing new loans at more than 7 percent interest, investor and Shark Tank personality Kevin O'Leary said.
'That was unprecedented in terms of the pace,' O'Leary told Newsweek.
O'Leary noted that approximately 90 percent of homes have mortgages with rates below 6 percent.
'If those people were to sell their homes now, they would be now facing a 7½ percent mortgage versus 3½ percent. They have no incentive to sell their homes,' O'Leary explained.
'So you've got an artificially low number of existing housing units not coming on the market. That's particularly evident in Florida, Texas, Tennessee and other markets.'
Wealthy retirees are moving from high-tax states such as California, Massachusetts, New Jersey, and New York to places with lower taxes and living costs such as Miami, Florida, and Austin, Texas, increasing demand and driving up prices in these markets.
Wealthy retirees are moving from high-tax states such as California, Massachusetts, New Jersey, and New York to places with lower taxes and living costs such as Miami, Florida, and Austin, Texas, pictured
The shift towards remote work, accelerated by the pandemic, has also increased demand in the South and Sun Belt regions. Pictured, downtown Nashville, Tennessee with the Cumberland River
The shift towards remote work, accelerated by the pandemic, has also increased demand in the South and Sun Belt regions, as people seek better living standards away from urban centers.
'If you were looking at a map of...where housing is particularly strong, it coincides or correlates with more attractive tax policy,' O'Leary said.
'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 went on.
'So those smaller towns and those jurisdictions which weren't ready for a boom in housing find themselves in exactly that huge demand. And this is the nature of a digital economy.'
Miami together with South Florida in general has long proved popular with retirees
O'Leary said he was surprised that high mortgage rates haven't dampened housing demand, attributing it partly to historical norms where rates were in the 6 to 7 percent range.
He emphasized that the rapid pace of the Fed's rate hikes was unprecedented and unexpected but was also surprised that it did not dent the demand for housing.
'I don't think anybody saw that coming,' he said. 'It doubled or tripled the cost of mortgage and had no effect on demand.'
One way of explaining that dynamic was that historically rates had been in the 6 percent and 7 percent range.
'Many housing market booms have occurred during periods where rates were higher than that,' O'Leary said. 'But to have the Fed raise rates in an unprecedented speed as we saw, that was really unique.
'The majority of housing is extraordinarily buoyant through an unprecedented period of rate hikes, and so for those of us who analyze this every day as we try and deploy capital, that was a surprise.'
