The simplest answer to this is when sellers feel like moving…..so I guess it boils down to what will it take for that to happen?
Many people who have been in their houses for more than 5 years either got a super low interest rate or refinanced to get one. It is hard to give up something like a 3.5% rate and buy your next house at the top of the market and do a 5% mortgage. Right now, all that free equity from appreciation isn’t enough to make somebody want to give that up.
But, eventually there will be a tipping point.
Let’s say you bought a house 5 years ago for $200k. You put down 5% and got a 3.5% rate for 30 years. The principal and interest part of your loan is about $900 a month. Flash forward to today. The house is probably worth $240k. You owe about $173k on it and have about $67k in equity.
You decide you want to buy a $300k house. You finance about $235k after you get the equity out of your last house. You get a 5% rate. The principal and interest part of your loan is now $1200 a month.
Maybe you don’t want to spend $300 more each month?
What will it take to make you list your old house?
Maybe another $40k equity in your old house? Assuming rates stay about the same and the price of the $300k house you want appreciates less than the $240k house you have, this $40k is what it will take to keep your payment about the same each month. It will take about 3 years for that to happen between appreciation and what you are paying down each month in principal.
We all bemoan higher interest rates, but lets keep in mind that the reason we don’t like higher rates is because they make the mortgage payments higher. People have a certain amount they can/will spend each month on housing. People will always try to stuff as much house into that payment as they can. I think the day sellers can move up to a nicer house and not pay that much more will be when we see more for sale signs in yards.