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Housing market chills as mortgage rates, prices scare buyers

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New York (AP) — Kyle Tomchuck was looking for a home-in-law in the suburbs around Denver. The price was close to $ 450,000.

Tomcak was depressed as investors lost to offering cash above the asking price of $ 100,000. Since then, mortgage rates have skyrocketed, leaving his price range out of reach.

“Suddenly your purchasing power diminishes … even if your payments are the same,” he said.

Tomkak, 39, a project manager for a commercial painting company in Aurora, Colorado, wanted to fix his $ 2,350 mortgage payment each month. His mortgage consultant recommended lowering the maximum price he pays for a home first to $ 300,000 and then to $ 200,000.

Tomcak has abandoned his search for now.

The Federal Reserve has aggressively raised short-term interest rates to combat inflation. This helps boost interest rates on credit cards, car loans and mortgages. Rising mortgage rates, coupled with already high home prices, are discouraging buyers. Mortgage applications are declining sharply.The sales of previously occupied homes Collapsed for 5 consecutive monthsGenerally the busiest time in real estate.

30-year mortgage rate This week’s average is about 5.54%According to mortgage buyer Freddie Mac; a year ago it was close to 2.78%. Rising prices leave buyers with some unwelcome options. Pay hundreds of dollars more on your mortgage, buy a small home, choose to live in a less desirable neighborhood, or at least drop out of the market until the price drops.

All signals show that the Fed continues to raise interest rates, with little promise of bailouts to potential buyers, at least for the rest of the year.

Data provided to AP Communications by real estate data company Redfin shows how much home a buyer can get with a $ 2,000 monthly 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 to pay for a mortgage of that size. Currently, that amount only provides buyers with a 2,200-square-foot home.

In the hotter housing market, Seattle, this $ 2,000 / month payment last year would have allowed buyers to get a modest home of 1,300 square feet. That kind of payment will now only give them a 950 sq ft apartment.

“Simply put, people can’t afford the same home as they did a year ago,” said Redfin economist Daryl Fairweather.

Not only do we encourage potential homeowners to rethink their home search, but rising interest rates are increasing the number of buyers who have closed their homes. According to Redfin, about 60,000 home purchases were closed in June, accounting for nearly 15% of all homes signed last month. This is 12.7% in May, up from 11.2% a year ago.

For more than a decade, mortgage costs have been at historically low levels, and potential homebuyers are willing to put up with rising home prices. According to data from the Federal Reserve Bank of St. Louis, the average mortgage rate for 30-year fixed rate mortgages has been below 4.5% for most of the last decade.

Financial data firm Black Knight estimates that rising mortgage rates have led to a 44% increase in monthly payments for typical borrowers since the beginning of the year. Since the beginning of the pandemic, mortgage payments have doubled to more than $ 2,100.

Most of the pain is felt at the bottom of the market: first-time homebuyers who often have the least amount of down payment and are trying to make monthly payments work for their budget. Home sales for less than $ 250,000 in June fell by more than 30%.

For those who can afford to buy a home even with high mortgage rates, the slowdown in the housing market has a silver backing and more options. Fewer housing offers tend to stay on the market longer. According to Realtor.com, the number of homes for sale, which has risen from a very low level since spring, increased by 18.7% year-on-year.

The market has changed dramatically for sellers as well.

Raymond Martin and his wife listed their home in Austin, Texas, for sale for $ 1.1 million in early May. They thought that selling a four-bedroom, three-bathroom home would be a “walk in the park.”

There was a reason the couple was optimistic. Most recently, this spring, well above the asking price, with sellers receiving multiple competing offers within hours of listing their homes and some buyers waiving their right to inspect their homes. It was not uncommon to agree to pay the amount. Place rival bidders. It was a very seller’s market.

Instead, Martins has not yet received a single offer and has reduced the asking price to $ 899,000. Raymond Martin, 51, said a neighbor sold a home of the same size for $ 100,000, above the $ 1 million asking price, just before listing Austin’s home.

The couple live in a new home in Florida while patiently trying to market Austin’s real estate. “Obviously, the types of markets are deadlocked,” he said.

Historically, late spring to early summer is the peak season for home buying in the United States, but there are several signs of disappointment for buyers.

The number of Americans applying for mortgages has dropped significantly since a year ago. Weekly mortgage applications tracked by the Mortgage Bankers Association are down about 50% year-on-year. Potential homebuyers do not apply for a mortgage unless they settle in a particular home or condominium, so a reduction in mortgage applications could slow down future homebuying activity.

Joe Luca, a realtor and former chairman of the Rhode Island Real Estate Agents Association, said buyers need to narrow down their searches, settle in small homes, and choose areas far from the city centre. ..

“People may be trying to buy a house in a really nice town in the best part of the town. They can’t afford it because the price goes up, so they buy what they’re trying to buy. It needs to be readjusted, “he said.


Casey reported from Boston. Veiga reported from Los Angeles. AP reporter Jesse Beden contributed this report from Denver.

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