Shark Tank’s Kevin O’Leary gives stark warning about housing market in these three states

Canadian businessman Kevin O’Leary has highlighted three states where homeowners are reluctant to sell their properties.

Homeowners in Texas, Florida and Tennessee are currently enjoying low mortgage rates and would likely double their payments if they decided to move to another state.

Over the past two years, the US Federal Reserve has raised interest rates in an attempt to curb inflation.

As a result, mortgage rates have fallen to their highest level in forty years.

This means that home prices are rising for buyers, while home prices continue to rise.

Homeowners who were locked into lower mortgage rates are being deterred from selling and are facing new loans with interest rates of more than 7 percent, according to investor and Shark Tank personality Kevin O’Leary

According to investor and Shark Tank personality Kevin O’Leary, homeowners stuck with lower mortgage rates are being deterred from selling their homes and are being faced with new loans with interest rates of more than 7 percent.

“That was unprecedented in terms of pace,” O’Leary said Newsweek.

O’Leary noted that about 90 percent of homes have mortgages with interest rates below 6 percent.

“If those people were to sell their homes now, they would be looking at a 7½ percent mortgage instead of a 3½ percent mortgage. They have no incentive to sell their homes,” O’Leary explained.

“So you have an artificially low number of existing homes that are not coming to market. That’s particularly evident in Florida, Texas, Tennessee and other markets.”

Wealthy retirees are moving from high-tax states like California, Massachusetts, New Jersey and New York to places with lower taxes and a lower cost of living, like Miami, Florida and Austin, Texas. This increases demand and drives up prices in these markets.

Wealthy retirees are moving from high-tax states like California, Massachusetts, New Jersey and New York to places with lower taxes and a lower cost of living, like Miami, Florida, and Austin, Texas, pictured.

The shift to remote work, accelerated by the pandemic, has also increased demand in the South and Sun Belt regions. Pictured: Downtown Nashville, Tennessee with the Cumberland River

The shift to remote work accelerated by the pandemic has also increased demand in the South and Sun Belt regions as people seek a better standard of living outside urban centers.

“If you look at a map of…where the housing market is particularly strong, that coincides or correlates with more attractive tax policy,” O’Leary said.

“If you can move 100 miles out of town or 200 miles from work, you’re in a better location for many reasons: better housing, better schools, a better lifestyle,” O’Leary continued.

“So those smaller cities and jurisdictions that weren’t primed for a housing boom are finding themselves in that very demand zone. And that’s the nature of a digital economy.”

Miami, along with South Florida in general, has long been popular with retirees

O’Leary said he was surprised that high mortgage rates haven’t dampened demand for homes, partly due to the historical norm, where interest rates have been around 6 percent to 7 percent.

He stressed that the Fed’s rapid pace of rate hikes is unprecedented and unexpected, but was also surprised that it has not had a negative impact on housing demand.

“I don’t think anyone saw that coming,” he said. “It doubled or tripled mortgage costs and had no effect on demand.”

One way to explain this dynamic is that historically, interest rates have been between 6 and 7 percent.

“Many housing booms have occurred during periods when interest rates were higher than that,” O’Leary said. “But for the Fed to raise rates at the unprecedented pace that we saw was really unprecedented.

“The majority of the housing market is in exceptionally good shape during an unprecedented period of rate hikes. For those of us who analyze this daily and try to deploy capital, that was a surprise.”