Kevin O'Leary Weighs In On Three States Where Owning Might Be Better Than Selling
Shark Tank investor Kevin O'Leary has identified Texas, Florida and Tennessee as states where homeowners hesitate to sell their properties.
Homeowners locked in low mortgage rates face significantly higher payments if they finance the purchase of a home at current interest rates. The Federal Reserve has hiked interest rates over the past two years to control inflation.
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With interest rates exceeding 7%, many are reluctant to sell their homes and finance new purchases at a significantly higher rate. O’Leary said that mortgage rates are below 6% on about 90% of homes.
"If those people sell their homes now, they would be facing a 7½% mortgage versus 3½%," O'Leary told Newsweek. "They have no incentive to sell their homes. 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 flocking from high-tax states like California and Massachusetts to lower-cost, tax-friendly destinations like Miami and Austin, Texas. The influx of new residents drives up demand and home prices in these popular retirement spots.
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The surge in remote work resulting from the pandemic fueled demand for housing in Southern and Sun Belt states.
O’Leary said that strong housing markets correlate to locations with more attractive tax policies. Moving to an area away from where you work could improve your lifestyle with more desirable housing and better schools.
"So those smaller towns and those jurisdictions which weren't ready for a boom in housing find themselves in exactly that huge demand," O'Leary said. "And this is the nature of a digital economy."
O'Leary expressed surprise at the housing market's resilience in the face of elevated mortgage rates. He suggested that historical interest rates, typically in the 6% to 7% range, may have conditioned buyers to accept higher rates. While acknowledging the unprecedented speed of the Federal Reserve’s rate hikes, he was puzzled by their minimal impact on housing demand.
"I don't think anybody saw that coming," he said. "It doubled or tripled the cost of mortgage and had no effect on demand."
Some housing market booms occurred when rates were higher than 6% or 7%, but the rates rising so quickly differed.
"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," O'Leary said.
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