The U.S. housing market is behaving peculiarly, says Jim Righeimer, a former Costa Mesa, California, mayor and lot developer. While homebuyers are leaving the market, home prices are not falling.

Real estate platform Redfin reports that home prices ticked up just 0.2 percent in November. At the same time, the U.S. housing market has 37 percent more sellers than buyers.

Neither side is conceding an inch.

“We have a very unusual marketplace,” Righeimer said during a recent interview with Siyamak Khorrami, host of EpochTV’s “California Insider” program.

Many homeowners will not sell because they are locked into ultra-low mortgage rates, so when they move, they rent out their old homes rather than give up their cheap financing, he noted.

For decades, new homes made up approximately 10 percent of the U.S. home market, with the remaining 90 percent coming from existing homes. In recent years, the share of new homes has jumped to around 30 percent, he says.

These results stem from what economists call the golden handcuff effect.

Mortgage Rate Millstone

To cushion the economic blows of the pandemic, the Federal Reserve lowered interest rates to nearly zero percent, causing 30-year fixed-rate mortgages to crater to record lows of 2 to 3 percent. This locked millions of homebuyers into their cheap mortgages, preventing them from selling their properties and moving somewhere else.

“We’ve never done this before where existing homes have 3 percent interest rates on them,” Righeimer said.

However, rates are now around 6 percent, pushing some of those homeowners to sell, he said.

“Six percent was not what we had over the years I’ve been in this business. It’s considered actually pretty low, but when the rates got down to three, 6 percent is twice as high,” Righeimer said.

The Trump administration has proposed portable mortgages to further unlock the golden handcuffs. This policy would allow homeowners to transfer their existing mortgage—interest rate, terms, and amortization period—to a new house, townhome, or condominium.

Meanwhile, homeowners continue to resist price declines, he says. Nobody wants to be in the position of paying $450,000 for a house and then selling it for $400,000—as a result, there will be efforts to push back against downward price pressures, Righeimer says.

Even President Donald Trump, speaking to reporters in the Oval Office, acknowledged this dilemma. On the one hand, young people want to be able to afford a home. On the other hand, older homeowners do not want to experience falling prices.

“I don’t want to knock those numbers down, because I want them to continue to have a big value for their house. At the same time, I want to make it possible for young people out there and other people to buy housing. In a way, they’re at conflict,” Trump said in December.

Industry Intervention

Until something happens, the industry has been working to keep sales moving in today’s market conditions.

According to Righeimer, large home builders have stepped in with aggressive mortgage-rate buydowns. Because they sell thousands of homes and can package or hold loans themselves, they can offer buyers artificially low rates—often around 3 to 3.5 percent for 30 years or for the first several years.

This, he says, makes new homes more affordable than existing ones for many buyers, especially first-time buyers who do not need to sell a home.

Still, economic uncertainty and elevated home prices have prompted prospective homebuyers to move cautiously. While interest rates are trending down—the average 30-year rate is slightly above 6 percent—the top concern is about overall confidence in the U.S. economy, he notes.

Data indicate homebuyers are getting cold feet. Fifteen percent of home purchases fell through in October, up 14.3 percent from the previous year, Redfin statistics show.

And now this has created a new issue.

With sales down, according to Righeimer, the head of Arbor Capital Partners, based in Newport Beach, California, the key issue has become land and lot inventory: how many lots that builders already control, how many they have contracted to purchase, and how many they still need. This drives negotiations with land developers.

Market Normalization

The U.S. housing market is now experiencing a normalization following the post-pandemic frenzy.

Demand has softened due to lower household formation and people leaving specific areas.

Some markets that experienced massive pandemic inflows—Austin, Texas, and most of Florida, for example—are now normalizing. Valuations surged when people moved in during COVID (and in Florida’s case, because of no state income tax), but with more supply coming online and demand stabilizing, prices are now under downward pressure.

After decades of underbuilding and failing to keep up with a growing population, supplies are steadily improving. Last year, active inventories rose more than 14 percent.

Housing stocks could further increase as construction costs are easing because subcontractors—plumbers, electricians, and others—are less busy than during the pandemic boom. With lower demand for their services and fewer supply‑chain pressures, they are bidding more aggressively, which is pushing project costs down.

But it is a balancing act.

Buyers no longer need to panic-buy, says Righeimer. Another home will likely be available next week.

“There’s not a big storm of people that are there to buy the house, unless you’re in an area where there’s nothing available,” he said. “Take your time. Go see the product. Go see houses. Go see what things are selling for. Push for a better deal.”

In the end, for those attempting to achieve the American dream of homeownership, there is nothing wrong with negotiating prices and determining how much room there really is in those prices.

“Nothing wrong with that at all.”