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What It Takes to Buy Your First Home Now

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Dylan Holland and Breana Cameron began shopping for their first home in the suburbs of Atlanta in December 2021. The budget was about $ 350,000. They soon realized that they had to do much more than they planned to go home.

The couple wanted to buy before Mr. Holland’s debt ended in July and prior to his wedding in October. Their mortgage rates have doubled and become more urgent in the months they spent looking for a home.

“That was a big difference,” said 30-year-old Holland. We wanted to lock it in. “

After a bidding war with 14 other buyers, they paid $ 395,000 in May for a three-bedroom, two-story home in a lush family-friendly neighborhood in Canton, Georgia. This is about 10% above the asking price of $ 359,000.

To make up for the gap between budget and final costs, Holland and Cameron received gifts from relatives to help with the down payment and spent about $ 5,000 to buy a mortgage rate of 5.875%. Dutch severance pay account. Holland works in technical consulting and Cameron works in a hospital.

“We were definitely not happy with our timing, but there was nothing we could really do about it,” Holland said. “Housing is not on the market in this area. They just disappeared within a week.”

Holland and Cameron were partially dependent on gifts from relatives to compensate for the rise in home prices.


Photo:

Kendrick Brinson of The Wall Street Journal

First-time homebuyers face a very difficult home market and threaten to keep young households out of home ownership and the building of wealth they can provide. Despite rising prices, record low interest rates made home ownership more affordable for many families in late 2020 and early 2021. But now, interest rates are skyrocketing and prices are still rising.

Median pre-owned home sales prices in May as home prices reach new highs Over $ 400,000, up 14.8%Recorded, even if the previous price was adjusted due to inflation.The number of homes for sale is well below normal levels during this period, and buyers Compete in a bid war And at their offer they give up the typical protection.

According to mortgage companies, the average interest rate on 30-year fixed-rate mortgages has skyrocketed from 3.1% at the end of 2021 to 5.81% this week.

Freddie Mac..

This has boosted buyers’ expected monthly payments by hundreds of dollars a month.

When Rent is also risingIt makes it more difficult for future buyers to save for a down payment.

Eric Bernstein, President of LendFriend Home Loans in Austin, Texas, said:

rear Strong performance in 2020 and 2021The proportion of first-time buyers in the existing housing market has declined this year as interest rates have risen, thanks to record low interest rates.

According to the National Association of Real Estate Agents, 27% of pre-owned home purchases in May were down from 31% in the previous year for first-time buyers.

Younger households have been slow to accumulate wealth and dozens of enjoyment of older homeowners, as first-time buyers are forced to grow financially to buy homes or delay purchases altogether. You can even miss out on years of equity.

Higher costs have driven many buyers out of the market. According to May, monthly mortgage payments for typical homes rose to $ 2,031.

Zillow Group Ltd.

“Housing doesn’t stay in the market,” Holland said. “They are gone within just a week.”


Photo:

Kendrick Brinson of The Wall Street Journal

Rising interest rates are expected to slow home price growth later this year, but that hasn’t happened yet and demand continues to outpace supply.

“Instead of having 15 or 20 offers [per home]Lee Abe, a real estate agent in Honolulu, said: “They say,’I don’t want to lose, I need this place.’ So they will bid and pay higher.”

First-time buyers have the hardest time during the bidding war. Savings are often limited Compared to buyers who profited from previous home sales and investors who can pay cash.

According to the NAR, millennials in the year ended June 2021 accounted for 43% of existing homebuyers. Young millennial buyers between the ages of 23 and 31 paid a median purchase price of $ 250,000. Elderly millennials between the ages of 32 and 41 paid a median purchase price of $ 315,000.

Marketing Jacquelyn Pica and auto mechanic Alex Villavicencio struggled to find a starter home in St. Petersburg, Florida this spring within a budget of about $ 300,000. They went to an open house attended by 30 or 40 other shoppers. During the weeks they spent looking for a home, interest rates rose about a percentage point, adding to the expected monthly costs.

After losing four offers to high bidders, the couple decided to sign a lease for another year and continue to save money.

“It’s definitely scary because interest rates are rising and it’s not always affordable in a year,” said Pika, 26. She accepts the offer. … It’s very ridiculous and disappointing. “

After losing several bid wars, Jacquelyn Pica and Alex Villavicencio decided to continue renting.


Photo:

Jacklin Pika

Prior to the Covid-19 pandemic, inventories of homes for sale nationwide were unusually low and plummeted further in the last two years. Future sellers remain in place They are worried that they may not be able to find a better one to buy.Many older Americans Choose to age on the spot..And the construction of new homes since the recession of 2007-09 Behind the historic level..

Homebuilders have been active over the last two years, Supply chain issues And labor shortage. Also, new homes, which account for about 13% of total home sales in the first quarter, are often more expensive than existing homes. According to Census Bureau data, only 9% of new homes sold in May were priced at less than $ 300,000, up from 23% of new home sales in the previous year.

DR Horton Ltd,

The largest homebuilder by volume said in April that average selling prices in the second quarter were $ 400,600, up 23% year-on-year. Bill Wheat, the company’s chief financial officer, said at a meeting in June that he expects house prices to slow down by the end of the year.

According to the Atlanta Federal Reserve Bank, median homeowners in the United States needed 41.2% of their income to cover their median home payments in April. This was the highest level since 2006, up from 32.6% at the end of 2021.

First-time buyers who cannot make a purchase may face short-term or long-term financial implications.

Home ownership is an important wealth-building tool for the US middle class. According to the Federal Reserve Consumer Finance Survey, median homeowners had assets of $ 254,900 in 2019, while median lessors were $ 6,270. And for all households except the highest-income households, their residential real estate accounted for most of their overall wealth.

First American Financial Ltd.

Total value of US homes between 2010 and 2020 $ 8.2 trillion increase to $ 24.1 trillionAccording to NAR.

Elliott Pepper, Baltimore’s financial planner, benefits from tax incentives because homeowners can usually deduct interest and property taxes paid on personal mortgages.

Meanwhile, Curtis Crossland, a financial planner in Scottsdale, Arizona, said that if home prices fall, buyers who buy homes financially may soon find themselves underwater.

Buyers off the market may find it difficult to save for future purchases.Inflation rate in the U.S. has risen 8.6% year-on-year in May, 40 years high. According to the apartment list on the rental website, the national average rent in May was $ 1,343, up 15.3% year-on-year.

Savings and other safe investments are not growing at the same rate as home prices. For example, a buyer planning to buy a $ 400,000 home can secure $ 80,000 in their savings account for a 20% down payment. In 2021 House prices rose 18.8%, Savings account yields are less than 1%. Brian Minogue, financial planner in Madison, Wisconsin, said a $ 400,000 home in 2021 could cost $ 475,200 and a 20% down payment would require about $ 95,000.

According to CoreLogic’s Closing Corp, the average cost of closing a single-family mortgage in 2021 was $ 6,905, up 13.4% year-on-year.

While many economists believe prices are unlikely to fall nationwide, the housing market is starting to cool and may benefit buyers who can afford to wait. In many markets, it’s starting to lose competitiveness for buyers, realtors say. Homes have been on the market for a long time and more sellers are lowering prices, but list prices are still above year-on-year levels.

For many households, soaring housing costs have moved them to more affordable markets.

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How did the rising cost of buying a home affect you? Join the conversation below.

Megan and Bren Ten Stout wanted to buy a home in Grand Traverse County, Michigan in 2021, but postponed the plan due to rising home prices. Their landlord raised the rent from $ 1,350 to $ 1,400, so Stout moved to a small place with his four sons last summer.

They finally bought a house about two hours away in Saginaw, Mississippi for $ 237,500 in April. Stout, who worked at a winery, is looking for a job close to Saginaw.

“I’m very excited,” said Mrs. Stout. “I’m 36, but I feel like we’ve done that.”

Write to Nicole Friedman [email protected] And Veronica Dagger [email protected]

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