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Market chills as rising 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.

Tomcak, 39, and a project manager at a commercial painting company in Aurora, Colorado, wanted to fix their monthly mortgage payments of $ 2,350. His mortgage consultant recommended lowering the maximum price he pays for a home first to $ 300,000 and then to $ 200,000.

Tomcak abandoned his search — for now.

According to mortgage buyer Freddie Mac, this week’s 30-year mortgage rate averaged around 5.54%. -Adobe Stock

Mortgage rates rise

The Federal Reserve has aggressively raised short-term interest rates to combat inflation. This will raise 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. Sales of previously resident homes have declined for the fifth straight month, which is generally the busiest time in the real estate industry.

According to mortgage buyer Freddie Mac, this week’s 30-year mortgage rate averaged around 5.54%. A year ago it was close to 2.78%. Rising interest rates 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 leave the market until interest rates fall.

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 by real estate data company Redfin to AP Communications shows how much home a buyer can get with a $ 2,000 monthly mortgage payment. For example, in Providence, the average buyer a year ago could have bought a home of about 4,900 square feet to pay for his mortgage. For that amount of money, the buyer can now get a home that is less than half that size (2,200 square feet).


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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.

Signs for sale
According to Redfin, about 60,000 home purchases were closed in June. -Adobe Stock

Buyers withdraw

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%.

adobe-stock-home-for-sale-price-cut
The market has changed dramatically for sellers as well. -Adobe Stock

Silver lining

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, while sellers have received multiple competing offers within hours of listing their homes and some buyers have waived their right to inspect their homes, the asking price is much higher. It was not uncommon to agree to pay more than that. Defeat 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 his neighbors sold a property of the same size for $ 100,000, above the $ 1 million asking price, shortly before listing his 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.

Contract signing.Female customer sign paper in dealer office, buy new car or buy property Unrecognized African American female client, close-up shot, cropped image of free space
The number of Americans applying for mortgages has dropped significantly since a year ago. -Adobe Stock

Buyers are discouraged

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. Since shoppers do not apply for a mortgage unless they settle in a particular home or condominium, a decrease in mortgage applications could slow down future home buying 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. rice field.

“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, “Luke said.

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