Why sellers won't cut price: the $627 gap between their note and today's rate

Question

Houston's August numbers look contradictory until you do the mortgage math.

Closings: 7,100, down 11.5% year over year.

Active listings: 38,947, up only 0.5%.

Months of inventory: 5.3, unchanged.

Days on market: 54, up from 52.

Median price: $330,000, down 1.5%.

Inventory is not surging. Sales are falling. The same pile of houses is sitting longer.

Here is why the sellers are not capitulating.

Freddie Mac had the 30-year at 6.71% on September 3. Per the FHFA National Mortgage Database, 78.8% of outstanding US mortgages carry a rate below 6%, 68.6% are below 5%, and 51.5% are below 4%.

Run that on Houston's median house. An owner who financed $240,000 in 2021 at 3.5% pays about $1,078 a month in principal and interest. Sell, and buy the same $330,000 house again with 20% down at 6.71%, and the note is about $1,705.

$627 more every month. A 58% increase. Same house.

Then the condition problem. A house untouched since 2005 does not sell in 54 days against 39,000 listings without work or a price cut. On 2026 cost-versus-value figures a roof runs about $30,800 and returns roughly 65%, HVAC about $18,500 at 65%, a minor bathroom about $24,600 at 70%. All three: about $74,000 spent, about $49,000 recovered.

So the trade for a median seller is $330,000 gross, minus about $74,000 of work, minus roughly $24,750 in commission and closing, and a payment that goes up $627 a month on the other side.

That is not a stubborn seller. That is a rational one.

The practical takeaway for anyone buying: days on market is not a motivation signal in this market. A listing sitting 120 days is often an owner who has run these same numbers and concluded that waiting is cheaper than moving. His floor is built out of his own mortgage, and time does not move it.

The discounts are where nobody is protecting a payment. Estates and probate. Out-of-state owners. Tired rentals. Bank-owned inventory. And the 21.2% of mortgages already above 6%, a share that just passed the number of sub-3% loans for the first time.

That last group grows every month, and it is the part of the lock-in story that gets ignored.

Curious whether others are seeing the same split in their markets: flat listing counts but falling volume, rather than a real inventory build.

Steve Waller · Answer

Igor, that fits. A tax deed owner has no payment to protect and a deadline someone else set, the opposite of the lock-in seller on the MLS.

The catch is on the buy side: a 30-day cash close keeps that field small, and so do the unknowns. Title, occupancy and condition are all unseen at the bid, so part of the discount is paying for risk, not just motivation.

I like using the auction discount as an early read on motivated sellers generally. How are you measuring it: against assessed value, a broker opinion, or what the same properties resell for after rehab?

Igor Ganapolsky · Answer

Steve, your point about where the discounts actually live tracks with what I'm seeing at tax deed auctions in Broward County, FL. The sellers at tax deed sales are exactly the group you described — nobody protecting a payment. The property tax lien doesn't care about their original mortgage rate, and the redemption clock creates urgency that a 120-day MLS listing never does.

What's interesting is the price discovery is completely different on that side. At auction you're competing against maybe 5-10 cash buyers, and the starting bid is the tax lien amount — not some seller's emotional anchor to what the neighbor's house sold for in 2022. I've seen properties with $200k+ in equity go for 40-50 cents on the dollar because the pool of cash buyers who can close in 30 days is smaller than you'd think.

The lock-in effect you describe is real on the MLS, but it basically doesn't exist at tax deed sales. The owner already lost the property to taxes — there's no $627/month decision to agonize over. That's where the motivated sellers actually are right now, and it's not even close.

Your months of supply metric is the right one to watch. In Broward the tax deed auction premium/discount to market is a leading indicator of how motivated the non-tax-deed sellers actually are, and that gap has been widening.

Steve Waller · Answer

Jay, apologies for the slow reply, this one sat longer than it should have.

No argument on sub-4%. I do not think that environment comes back either, and nothing I wrote assumes it does. Where I would push is on what ends the lock-in. It does not need rates to fall. It ends by turnover - death, divorce, job moves, retirements, landlords aging out. That clock runs at its own speed regardless of the ten-year, and it is slow.

On values dropping, agreed eventually, but look at where the adjustment is actually showing up here. Closings down 11.5% against a median down 1.5%. That is almost all volume and almost no price. The seller with the 3.5% note is not a forced seller, so when the bid does not meet his number he withdraws instead of cutting. Rent is different, and I think that is why it moves first - a landlord has a payment either way, so an empty unit costs him every month the price does not.

The line I am watching is months of supply. It sat at 5.3, unchanged, while sales fell 11.5%. Inventory that does not build while volume drops means sellers are leaving rather than discounting. When that number starts climbing on falling sales, the price move follows.

Does Vegas show the same split, volume taking the hit while price holds, or is price already moving there?

Jay Hinrichs · Answer

the reality is 3% or sub 4% mortgages are just a thing of the past not sure they will ever get back there in my remaining years in the industry or on the planet.

this is just the new normal.. values will drop if folks cant buy just like rent is dropping.

Why sellers won't cut price: the $627 gap between their note and today's rate

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