By Ken Sweet, Michael Casey and Alex Veiga | The Associated Press
Kyle Tomcak was looking for a home for his in-laws in the Denver suburbs, something with a price close to $ 450,000.
Tomcak was discouraged by losing to investors facing cash offers of $ 100,000 above the asking price. Then mortgage rates rose, putting their price range out of reach.
“Suddenly, your purchasing power is lower … even if your payments are the same,” he said.
Tomcak, 39, a project manager for a commercial paint company in Aurora, Colorado, hoped to get a monthly mortgage payment of $ 2,350. His mortgage consultant recommended lowering the maximum price he would pay for a home, first to $ 300,000 and then to $ 200,000.
For now he has abandoned his search.
The Federal Reserve has aggressively raised short-term interest rates to fight inflation, which in turn helps raise rates for credit cards, car loans and mortgages. The rise in mortgage rates has been combined with already high house prices to discourage potential buyers. Mortgage applications have dropped dramatically. Sales of previously occupied homes fell for five consecutive months, during which, in general, it is the time of year for the most real estate activity.
The 30-year mortgage rate hovered around 5.54% on average this week, according to mortgage buyer Freddie Mac; a year ago it was close to 2.78%. Rising rates leave buyers with some unwanted options: pay hundreds of dollars more for a mortgage, buy a smaller home, or choose to live in a less desirable neighborhood or leave the market, at least until rates go down.
All signs point to the Fed continuing to raise interest rates, promising little relief for potential buyers at least for the rest of the year.
Data provided to The Associated Press by real estate data company Redfin shows how much housing a buyer could get with a $ 2,000-a-month mortgage payment. In Providence, Rhode Island, for example, an average buyer a year ago could have bought a home of about 4,900 square feet for the mortgage payment of that size. Now that amount only gives a buyer a 2,200-square-foot home.
In Seattle, a warmer real estate market, paying $ 2,000 a month this time last year would get a buyer a modest 1,300-square-foot home. That kind of payment would only get them a 950-square-foot apartment now.
“People just can’t afford the same house they could have a year ago,” said Daryl Fairweather, an economist at Redfin.
In addition to encouraging potential homeowners to reconsider their search for housing, rising rates are also forcing a growing number of buyers who have reached an agreement on a home to back down. Around 60,000 home purchase offers fell in June, accounting for nearly 15 percent of all homes that were hired last month, according to Redfin. It is an increase of 12.7% in May and 11.2% a year ago.
More news about housing: Southern California home sales fell 25% while payments soar 44%
For more than a decade, potential home buyers have been willing to endure rising home prices because the cost of a mortgage was at historic lows. The average mortgage rate on a 30-year fixed-rate mortgage has mostly remained below 4.5% for most of the last decade, according to data from the Federal Reserve Bank of St. Louis.
Financial data firm Black Knight estimates that rising mortgage rates have increased a typical borrower’s monthly payment by 44% since the beginning of the year. Since the start of the pandemic, the average mortgage payment has doubled to more than $ 2,100.
Most of the pain is being felt at the bottom of the market: the first time buyer, who usually has the least amount of money for a down payment and is trying to make the monthly payment work for their budget. Home sales with prices below $ 250,000 fell more than 30% in June.
For those who can afford to buy a home even with higher mortgage rates, the slowdown in the real estate market has a positive side: more options. As homes receive fewer offers, they tend to stay on the market longer. According to Realtor.com, the number of homes for sale, which has been rising from ultra-low levels since the spring, has increased 18.7% over the previous year.
The market has also changed drastically for sellers.
Raymond Martin and his wife listed their home in Austin, Texas, for sale for $ 1.1 million in early May. They thought selling the four-bedroom, three-bath house would be “a walk in the park.”
The couple had reason to be optimistic. As recently as this spring, it was not uncommon for sellers to receive several competing offers within hours of listing their home, or for some buyers to agree to pay well above the asking price while waiving their right to a home inspection, all for overcome. outside rival bidders. It was largely a sellers market.
By contrast, the Martins have not yet received a single offer and have lowered their price to $ 899,000. Raymond Martin, 51, noted that shortly before he published his home in Austin, a neighbor sold his similar-sized home for $ 100,000 above the $ 1 million price tag.
The couple lives in a new home in Florida while patiently trying to sell the Austin property. “Clearly, the market is stagnant,” he said.
Historically, between late spring and early summer is the peak season for home buying in the United States, but there are several signs that buyers have become discouraged.
The number of Americans applying for a mortgage has dropped significantly compared to a year ago. Weekly mortgage applications tracked by the Association of Mortgage Bankers were down about 50% from the previous year. The decline in mortgage applications could indicate a slowdown in future home buying activity, as potential home buyers do not apply for a mortgage unless they settle in a particular home or condominium.
Joe Luca, a realtor and former president of the Rhode Island Realtors Association, said buyers need to refine their search, settle for smaller homes, or choose a neighborhood further downtown.
“People may be looking to buy a house in a very beautiful city in the best part of that city. Rates go up so they can’t afford that, so they need to recalibrate what they’re going to buy,” he said.
Casey reported from Boston. Vega reported from Los Angeles. AP reporter Jesse Bedayn contributed to this report from Denver.
Housing market chills as mortgage rates, prices scare buyers – Press Telegram Source link Housing market chills as mortgage rates, prices scare buyers – Press Telegram