Christine Short and Steven Agemy love their brownstone apartment in Brooklyn, NY. But they might love their mortgage even more.

When they purchased the two-bedroom duplex three years ago, in March 2020, the price was fair and the mortgage rate was great, a mere 3.25%. Today, however, the married couple have clearly outgrown their starter home—and with a new baby girl joining their now 4-year-old boy, Short knows they’ll need a bigger place soon.

“It mostly works,” she says. Yet many nights, she finds herself surfing real estate listings. And while she often sees homes with plenty of potential, there is one thing holding her back: If they moved, they’d have to get a new mortgage at about double their original interest rate.

“We’re pinching ourselves for the rates we got,” Short says. But they will eventually have to make a tough choice: Sacrifice their interest rate, or remain in a house that’s no longer comfortable for their growing family.

“I can make this work for a few more years,” Short says. “Steven and I talk about this almost daily. And my two neighbors are both expecting children in the fall, so everyone is thinking about this.”

The housing market’s top problem today

This couple’s dilemma is so common, it’s been dubbed the “hate my house, love my mortgage” syndrome. According to the Urban Institute, this widespread malady stems from historically low mortgage interest rates in the 3% range more than doubling over the past year, surging to multidecade highs.

This sudden spike has thrown a wrench in the normal cycle of people buying starter homes, then eventually trading up. Since this would involve getting a new mortgage at a much higher rate, many homeowners are instead staying put, even if their house is poorly suited to their current needs.

“This is making the process of moving up in the current market very difficult,” says Realtor.com® Chief Economist Danielle Hale. “These are tough choices. It’s a hard time for homeowners to make plans.”

In fact, a recent report by Goldman Sachs found that 99% of borrowers have mortgage rates below 6%. Of those, 28% snagged rates at or below 3%. Combined with rising home prices, the cost of buying a house today is a whopping 50% higher than it was just a year earlier, Realtor.com data shows.

“The payment shock for trying to borrow the same amount of money is pretty large,” Hale says. “And when you consider how much prices have risen, it’s an added shock.”

“The biggest gap in the market right now is move-up buyers,” says Drew Coleman, founder of Opt Real Estate in Portland, OR. “They’re the ones that are log-jammed and don’t want to give up the rates, which is creating a lack of inventory.”

Coleman reckons that of all the people who come to see him, only about one-third actually decide to sell their homes. He sometimes wishes people would take the opportunity to be contrarian—to sell, then buy in the current market where there is probably less competition and prices are a bit off their peak. After all, they can always refinance later when rates go lower.

“We never tell people to take a payment they can’t afford,” he notes. “But what we’re saying is, you have an opportunity here.”

‘It feels risky no matter what I do’

For homeowners who want to move, facing higher housing payments seems particularly daunting when inflation is still raising the price of many things, leaving many feeling financially unsettled.

“A lot of my clients think, ‘It really feels risky no matter what I do. It feels like there are no good solutions out there.’ And I feel that,” says Nikki Kam, a real estate agent with Flyhomes in Seattle. To help, she tries to distill the personal situation down to very specific priorities. Is a larger home, a better school district, or more green space worth this much more money?

“With higher mortgage rates, their purchasing power is lower for the same monthly payment,” she says. “So, in that price range, can we find something to their liking? Can they tolerate, say, a longer commute, or will they decide, ‘we can wait’?”

At the end of the day, it’s important to note that in many ways, people with homes and the lowest mortgage rates in history have it really good. Short, for one, says she appreciates that hers is a “first-world problem.”

“We’re not dying here,” she says. “We’ll just have to get creative.”

The post Love Your Mortgage, Hate Your House? Inside the Misery of the Housing Market’s New Catch-22 appeared first on Real Estate News & Insights | realtor.com®.