Canadian businessman Kevin O'Leary pointed to three states where homeowners are reluctant to sell their properties.
Homeowners in Texas, Florida and Tennessee are currently enjoying low mortgage rates and could potentially double their payments if they decide to move to another state.
Over the past two years, the US Federal Reserve has been raising interest rates to curb inflation.
In the process, mortgage rates have been pushed to their highest levels in 40 years.
This means that home prices will continue to soar, while housing costs will rise for buyers.
Homeowners in Texas, Florida and Tennessee are becoming hesitant to sell their properties because low mortgage rates mean they don't want to borrow at today's much higher rates. Pictured is South Beach, Miami, Florida. Investor and Shark Tank personality Kevin O'Leary said homeowners who were locked in at low mortgage rates are hesitant to sell and are facing new loans with interest rates above 7%.
Kevin O'Leary, an investor and “Shark Tank” personality, said homeowners who were locked into low mortgage rates are now deterred from selling and essentially hesitant to take out new loans with interest rates above 7 percent.
“The pace has been unprecedented,” O'Leary told Newsweek.
O'Leary noted that roughly 90% of homes have mortgages with interest rates below 6%.
“If these people were to sell their homes now, they'd be paying a 7.5% mortgage instead of 3.5%. They have no incentive to sell their homes,” O'Leary explained.
“That means there are artificially low numbers of existing housing units not on the market. This is especially true in markets like Florida, Texas and Tennessee.”
Wealthy retirees are moving from high-tax states like California, Massachusetts, New Jersey and New York to lower-tax and lower-cost-of-living locations like Miami, Florida, Austin and Texas, increasing demand and driving up prices in those markets.
Wealthy retirees are leaving high-tax states like California, Massachusetts, New Jersey and New York for lower-tax and lower-cost-of-living locations like Miami, Florida and Austin, Texas (pictured). The shift to remote work, accelerated by the pandemic, is also driving demand in the South and Sunbelt. Pictured is downtown Nashville, Tennessee, along the Cumberland River.
The shift to remote work accelerated by the pandemic has also increased demand in the South and Sunbelt, as people leave urban centers in search of better standards of living.
“If you look at a map that shows you where housing markets are particularly strong, you'll see that it coincides or correlates with more attractive tax policies,” O'Leary said.
“If you can move 100 miles away from the city or 200 miles away from your workplace, you're going to have a better place to live for a lot of reasons: better housing, better schools, a better lifestyle,” O'Leary continued.
“So it's really creating huge demand in smaller towns and jurisdictions that weren't prepared for a housing boom. That's the nature of the digital economy.”
Miami, and South Florida in general, have long proven popular with retirees
O'Leary said he was surprised that rising mortgage rates haven't stifled demand for housing, in part because of the historical norm of rates being in the 6 to 7 percent range.
He emphasized that the Fed's rapid pace of rate hikes was unprecedented and unexpected, but he was also surprised that it didn't hurt housing demand.
“I don't think anybody expected that,” he said. “Mortgage costs have doubled or tripled, but that has had no impact on demand.”
One way to explain this trend is that interest rates have historically been in the 6% to 7% range.
“Housing booms have happened many times when interest rates have been higher,” O'Leary said, “but this is truly unusual for the Fed to raise interest rates with such unprecedented speed.”
“Most of the housing market has performed exceptionally well through a period of unprecedented interest rate increases, which has come as a surprise to those of us who analyze this daily to allocate capital.”