First, they had to fight the pandemic-related spending spree. Now prospective homebuyers are struggling with sky-high mortgage rates.
There is a “day and night difference” between the start of summer and fall, Riddish Kankariya, 37, told MarketWatch. “It’s crazy. It’s a bit like the pressure we were under when it came to viewing houses and bidding at the beginning of COVID.”
In the last year, the average interest rate on a 30-year fixed-rate mortgage has risen from 3.69% to 6.7%, after Freddie Mac. That number hit 7% last week before slipping lower this week, based on Mortgage News Daily daily survey.
“It’s become a numbers game,” Kankariya said.
Rising interest rates pose an “evolving threat to the volatile single-family home market and the economy at large,” wrote Mark Zandi, chief economist at Moody’s Analytics, in a note.
““It just feels like the middle class is being pushed out.””
“How big the damage will be depends largely on how much mortgage rates go up and for how long,” he added.
It’s no surprise that this is taking a toll on home seekers. For example, 15% of homes in Sunbelt cities contracted in August fell through, or around 64,000 homes across the country had deals dropped, according to a recent report by real estate brokerage Redfin Corp. RDFN.
These include the once-pandemic boomtowns of Las Vegas, Phoenix, Tampa, and Texas. A year ago, only 12.1% of homebuyers withdrew from stores.
And a report by Coldwell Banker Warburg, released this week, said New York City has become a “tornado market.”
Frederick Warburg Peters, President of Coldwell Banker Warburg and author of the report, said: “A tornado is completely unpredictable – nobody knows which path it will take. And it can level one house while leaving the neighboring house intact.”
Home buyers can’t take a break
Potential first-time buyers like the Kankariyas are “effectively locked out of homeownership in the face of the affordability collapse as higher mortgage rates merge with house prices beefed up by previously ultra-low interest rates,” Zandi said.
Kankariya and his wife both want to buy a house in North Jersey on the Hudson River.
They began searching for a home during the pandemic, which was a “chaotic, unfulfilling experience,” Kankariya said, as they only had 15 minutes to see the inside of their homes and an offer the day or the next had to give day.
For a first-time buyer like him, it was “nerve-wracking,” Kankariya said, “because this is the biggest purchase you’re going to make,” let alone a decision you have to make within 24 hours.
The Kankariyas have been looking for a new home, ideally a semi-detached or multi-family home, given the difficult supply chain issues that can complicate and lengthen the remodeling of an existing home.
But they kept getting outbid on homes they liked, despite consistently asking for more than just asking. “It was pretty simple, give us your best number and cross your fingers,” Kankariya said.
“So we decided to find an apartment… and try and wait out all this pandemic madness,” he added.
But now that the market is cooling, rates are taking off instead. “We all kind of saw the rise in mortgage rates on the wall,” Kankariya said, but “I didn’t think we could really appreciate how drastically they were going to go up.”
“It just feels like the middle class is being pushed out,” Erin Piedmont, a social studies professor who recently sold her home in Alabama and moved to Georgia for a new job, told MarketWatch.
Piedmont, 40, and her husband are also looking to buy a single-family home in Savannah, Georgia closer to their job at Georgia Southern University. She is currently renting a single family home because they keep getting outbid downtown for homes she likes.
In May they started looking for a place to live. One of the homes they really liked had 30 listings in two days and oversold for $85,000. And the buyer paid cash.
A recent weekend house hunting was also a let down. They saw a charming family home that looked promising despite the renovation. But the agent who showed them the house said a potential buyer is viewing the property with the intention of converting it into an Airbnb ABNB.
Prices were another matter. When the Piedmonts spoke to a mortgage lender in April before moving to Savannah, it was quoted at 4.5%. When she did the paperwork to get pre-approval after 90 days, they were given 6% because the couple hadn’t bought a home yet.
“People with a lot of money can still buy a house even when interest rates are higher. It’s the middle class that can’t afford the rates right now,” Piedmont said.
“The higher interest rates are raised, the further our budget is pushed down and down and down. We can’t even find something we really want,” she added. “We were so excited to buy a house and it was kind of demoralizing.”
Homebuyers pressured to act quickly as prices fluctuate
With mortgage rates rising and 30-year-olds briefly reaching 7%, home ownership has become much more expensive in 2022.
Coupled with the fact that property prices are yet to fall from their highs, affordability has been a major issue for potential buyers.
The median price of an existing home is $389,500, up 7.7% from a year ago This was announced by the National Association of Realtors at the end of September.
“The monthly mortgage payment for a middle-income household looking to buy the house mid-price with a 20% down payment at the prevailing mortgage rate is about $2,000, up $700 from a year ago,” Zandi said.
And rates won’t fall “until it’s clear that the Fed has stopped raising rates, and that’s unlikely until well after spring next year’s home selling season,” Zandi added.
High interest rates are “kind of a bummer,” Josh Lewis, 36, an audio engineer, told MarketWatch.
Lewis and his wife, both former Army veterans, plan to sell their current home in the Los Angeles suburbs in order to move to Seattle.
They bought their home for $400,000 about eight years ago, and it has since been valued at over $600,000.
Lewis said he’s been looking at homes in the Tacoma area and plans to settle down for five years and focus on going back to school and pursuing a master’s degree.
Lewis said he was able to find decent homes for his under-$500,000 budget. “But interest rates are rising fast,” he said. “They’ve changed so drastically in the last six months that our price range is constantly adjusting. So the faster we can move up there, the better we can absorb the lower interest rates.”
The Piedmonts sold their home in Florence, Alabama for $420,000. They had just refinanced their home at a 2.8% rate, which was “kind of a dream,” she said. They had paid $317,000 for it.
Expect house prices to fall soon: experts
The Kankariyas and the Piedmonts are both stuck waiting and renting while trying to buy their home.
But they might get lucky soon: Zandi expects house prices to “get back to earth quickly” based on his forecasts.
Barring a recession, he expects house prices to fall 10% from peak to trough, hitting a bottom in the summer of 2024.
“A panel of experts surveyed by Zillow assumes that the housing market will tilt in favor of buyers by 2023.”
But if the economy turns and a recession hits, peak-to-trough declines could amount to 20%, Zandi added, and parts in the south and mountains in the west could potentially see falls of more than 30%.
A majority of a panel of experts polled by Zillow Z,
Expect the housing market to tip in favor of buyers by 2023.
“It really means there’s a shift in bargaining power,” Jeff Tucker, senior economist at Zillow, told MarketWatch. Bubbling markets like Phoenix and Seattle have already started to cool off in recent months, he added.
“At some point, prices have to go down,” Kankariya said.
Piedmont added that her former home in Alabama was sold to someone who was planning to remodel the home — and turn it into an Airbnb.
You want to buy or sell your house? Do you have thoughts about the housing market? We’d love to hear from you – write to MarketWatch reporter Aarthi Swaminathan at email@example.com
https://www.marketwatch.com/story/the-demoralizing-process-of-buying-a-home-in-this-unpredictable-housing-market-one-home-had-30-offers-and-sold-for-85-000-above-asking-11664906057?rss=1&siteid=rss Home seekers on the “demoralizing” process of buying a home in a crazy market. One listing had 30 offers – and sold for $85,000 over the offer.