Homebuyers hit a wall as interest rates rise, inventories dwindle

LOS ANGELES (AP) – Shortly after moving to South Florida for a new job with the U.S. military, Shannon Kaufman and his wife, Wendy, signed up for a completely different mission: to buy a home.

For months, they searched the listings, planned late into the night which homes to target, and found out how much they could afford, even if it meant spending some of their retirement savings.

After visiting 200 listings and bidding on 15 homes that ultimately failed, Kaufmans finally found a home that at least fits some of their needs. However, they will rent it.

“We found a place that is smaller than we would like, but it will work until we have built something, or until the market cools down,” said Shannon Kaufman, 47.

The US housing market has become more and more insane and prices are out of reach for many buyers, especially beginners. This spring, traditionally the busiest season for home sales, is more likely to cause frustration and disappointment for aspiring home buyers than it is home ownership.

The number of homes for sale nationwide is still close to record low levels, fueling fierce competition among buyers struggling for fewer homes. From Los Angeles to Raleigh, North Carolina, when a house hits the market, it typically sells within days.

Bidding wars are common and they often carry the selling price far beyond what the owner asked for. And potential buyers who plan to finance their purchase with a home loan often lose out to investors and others who can buy a home in cash. A quarter of all homes sold in February were bought with cash, up from 22% a year ago, according to the National Association of Realtors. Real estate investors accounted for 19% of transactions in February compared to 17% a year ago.

Nichol Khan, a project manager, and her husband Ed moved to Mesa, Arizona, from Phoenix two years ago to shorten their commute to work. Home prices in the Phoenix area have risen 20% from a year ago to $ 500,000, according to Realtor.com.

“Prices just keep going up and up,” Khan said.

The couple has lost on more than a dozen homes they are bidding on. Some of the homes ended up being sold for less cash than the couple had offered.

“We do not have $ 500,000 in cash,” said Khan, 42. “We simply could not be competitive with it.”

Fewer homes on the market and high prices have been a hallmark of the housing market for the past 10 years or so. Now, rising mortgage rates further complicate the home buying equation. Higher prices can limit the pool of buyers and cool the growth in house prices – good news for buyers. But higher rates also weaken their purchasing power.

The average interest rate on a 30-year home loan has risen to around 4.7%. A year ago, average interest rates hovered just above 3%, according to mortgage lender Freddie Mac. The rise follows a sharp rise in 10-year government interest rates, reflecting expectations of higher interest rates in general as the Federal Reserve moves to raise short-term interest rates to combat rising inflation.

Potential buyers who applied for a home loan in February faced an average monthly mortgage payment of $ 1,653, including principal and interest, up 8.3% year-on-year, according to the Mortgage Bankers Association.

“It’s hard to believe, but I think it’s going to be tougher this year, in some respects, than it was in previous years,” said Danielle Hale, Realtor.com’s chief economist. “So far, we have at least seen the number of homes for sale continue to fall and prices continue to rise. “These two factors together suggest that the competitive market will keep buyers on their toes.”

Buyers should focus on homes that are well-constructed within what they can afford, experts say.

“You should see 15-20% below their limit; it gives them room for rating gaps, it gives them room to negotiate,” said Tracy Hutton, a broker at Century 21 in Indianapolis.

Sometimes it is not enough to be well prepared when a homeowner prefers to accept a cash offer instead of selling to a buyer with financing.

Wendy Kaufman of South Florida could not even get into an open house for a property on the market after she revealed that the couple had a mortgage backed by the Veterans Administration.

“When they saw I had a prior approval from the VA, they said, ‘Sorry, we will not work with you.'” She said.

Sometimes buyers do not have a chance to make an offer until a home is snapped up, invisible.

In the Miami area, so-called “blind deals” have become commonplace as a way to get around other buyers, said Rafael Corrales, a Redfin agent.

One reason is the ultra-low level of homes for sale, which for the metropolitan area of ​​Miami fell 55% in February from a year ago, according to Realtor.com.

Although each market is unique, there is one common obstacle throughout the United States: affordability. The average U.S. house price jumped 15% in February from a year earlier to $ 357,300, according to the National Association of Realtors.

The San Jose, California metro area had 40% fewer homes for sale in February than a year ago, according to Realtor.com. Buyers who need to navigate some of the most expensive housing prices in the country. The average home listing price rose 13.3% to about $ 1.36 million in February from a year earlier.

Market trends are a bit more inviting for buyers in the Midwest, including the metropolitan area of ​​Indianapolis, where the number of homes for sale fell by about 23% compared to a year ago. The average house price was $ 287,000 in February, up 8.5% from a year earlier.

In Raleigh, home listings fell as much as 55% in February from the year before. Competition for fewer homes helped push the average house price to $ 430,000, an increase of 9% from February 2021.

These trends created a more competitive market for first-time buyers like Lisa Piercey and her husband, Alex Berardo. First-time buyers accounted for 29% of all homes sold nationwide last month. That share has averaged 31% annually over the past 10 years.

The couple began looking for housing for $ 350,000 or less in December. They offered $ 5,000 above the offer price of two properties, but lost to rival bidders.

“That was all we could afford,” said Lisa Piercey, a 32-year-old project manager. “It’s really defeating, really disappointing.”

Eventually, the couple bought a townhouse in a new building, though they see it as a stepping stone to a more spacious house with a large patio.

“It’s big enough that we can still start our family and then move when the market hopefully dies in a few years,” she said.

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