Home prices remain elevated due to Golden Loan Phenomenon

Kevin D. Shelburn  |  December 1, 2022

Market Outlook

Home prices remain elevated due to Golden Loan Phenomenon

While interest rates have more than doubled in a years time, home values have barely budged. In fact, in many W. LA markets, Mar Vista included, property values sit well ABOVE their 2021 levels. With affordability and demand at all-time lows, shouldn't we be experiencing significant depreciation? 

There are multiple contributing factors, but the leading cause is due to a notable decline in supply, due to the "Golden Loan Phenomenon." Golden Loans are consumers who either bought or refinanced at all-time low interest rates just after the COVID outbreak, yet before the Fed's famed "pain speech" in August of 2022. These consumers simply refuse to part with their current mortgage and enter today's buyer's pool at elevated home values, but more importantly, elevated interest rates

What exactly do Golden Loans look like? According to real estate research firm Black Knight:

  • 89% of Californian’s have an interest rate of 5.0% or less
  • 71% of California's have an interest rate of 4.0% or less
  • 29% of California's have an interest rate of 3.0% or less

With some simple math we can see the power of Golden Loans. Let’s assume a homeowner owns a $2M home and carries a $1.4M balance with a 3.0% interest rate. They are going to sell their home and purchase another for the exact same value, $2M, and carry the exact same $1.4M debt to their new home. Here’s what that homeowner is looking at, excluding taxes and insurance:

Current payment at 3.0%: $5,900 per month or $71,000 per year.
Expected payment at 5.75%: $8,170 per month or $98,000 per year.

In this instance the consumer can expect to pay an additional $2,268 per month or $27,000 per year. The 2.75% rate increase from 3.0% -> 5.75% represents a 38% increase to their payment. Bear in mind this is also why mortgage refinances are at 22 year low.  

Values are resilient due to diminishing demand being met with an equally powerful supply shortage, which is attributable to the Golden Loan Phenomenon. This pattern is unlikely to change until such time when the spread between current interest rates and those with Golden Loans subsides. It should be noted that roughly 90% of consumers opt for 30 year mortgages, meaning those locked in at low rates have all the time in the world to wait it out.

Economist Stephen Thomas of Reports on Housing said it best, “Homeowners aren’t in love with their homes, but they are in love with their loans.”


About the author: Kevin Shelburn is a 20 year real estate and wealth preservation specialists with a BA from UCSB. He is an active member of the LMU Real Estate Advisory Council and licensed real estate broker for Shelburn Realty Group in Mar Vista.


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