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Thursday, August 11, 2022

Housing market cools due to mortgage rates, prices scare away buyers

NEW YORK ( Associated Press) — It’s summer that has cooled the housing market.

Rising mortgage rates have combined with already high home prices to discourage potential buyers. Mortgage applications have dropped sharply. During what is typically the busiest time of year in real estate, sales of previously occupied homes have fallen for five months in a row.

According to mortgage buyer Freddie Mac, 30-year mortgage rates averaged about 5.51% last week; It was close to 2.88% a year ago. The rate hike is leaving buyers with some unwanted options: pay hundreds of dollars more for a mortgage, buy a smaller home or opt to live in a less desirable neighborhood, or exit the market, at least by reducing rates. Until you come

All signs point to the Federal Reserve continuing to raise interest rates to tackle inflation, promising some relief for potential buyers at least for the rest of the year.

Kyle Tomak, 39, was in the market for a home worth about $450,000 to support his in-laws. Tomak and his wife bid adieu to every house they visited, whether they loved the house or not.

Tomak, a project manager at a commercial painting company in Aurora, Colorado, said his search became increasingly disappointing as he not only lost out to investors who offered $100,000 in cash at the offer price, but as Mortgage rates started rising.

Tomack expected to lock in a monthly mortgage payment of $2,350. The high rates meant he had to change his search. His mortgage advisor recommended dropping the maximum price he would pay for a home to $300,000 and then $200,000.

“All of a sudden, your purchasing power is low… even if your payments are the same,” said Tomak, who has dropped out of the housing search.

Data provided to The Associated Press by real estate data company Redfin shows how much a home a buyer can get with a $2,000-per-month mortgage payment. In Providence, Rhode Island, for example a year ago an average buyer could buy a home of about 4,900 square feet for a mortgage payment of that size. Now that amount only gives the buyer a 2,200-square-foot home.

In Seattle, a hot housing market, this time last year a buyer paying $2,000-a-month would have got a modest 1,300-square-foot home. With such a payment, they will now get an apartment of only 950 square feet.

“Simply put, people can’t afford to buy a house like a year ago,” said Daryl Fairweather, an economist at Redfin.

In addition to pushing homeowners to rethink their home search, rising rates are also forcing an increasing number of buyers who had struck a deal to buy a home. According to Redfin, nearly 60,000 home-purchase deals fell in June, accounting for about 15% of all homes that were under contract last month. This is up from 12.7% in May and 11.2% a year ago.

For more than a decade, potential homebuyers were prepared with rising home prices as the cost of a mortgage was at historic lows. According to data from the Federal Reserve Bank of St. Louis, the average mortgage rate on 30-year fixed-rate mortgages remained below 4.5% for most of the past decade.

Financial data firm Black Knight estimates that increases in 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 more than doubled to more than $2,100.

Most of the pain is being felt at the bottom of the market: the first-time home buyer, who often has minimal money for a down payment and is trying to make the monthly payment work for his budget. Sales of homes under $250,000 fell more than 30% in June.

For those who can afford to buy a home even with higher mortgage rates, expect a downturn in the housing market – more options. As homes get fewer offers, they tend to stay in the market longer. According to Realtor.com, the number of homes for sale, which has been rising from ultra-low levels since the spring, rose 18.7% from a year ago.

The market has changed dramatically for sellers as well.

Raymond Martin and his wife listed their home in Austin, Texas, for sale in early May for $1.1 million. He thought selling the four-bedroom, three-bath home 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 multiple competitive offers within hours of listing their home, or for some buyers to pay above the asking price while relinquishing their right to a home inspection. Agree to – To beat all rival bidders. It was a market for too many sellers.

Instead, the Martins have yet to receive a single offer and have reduced their asking price to $899,000. Raymond Martin, 51, noted that shortly before he listed his Austin home, a neighbor sold his similarly sized home for $100,000 for a price of $1 million.

The couple is living in a new home in Florida while patiently trying to sell the Austin property. “Obviously, the market kind of stalled,” he said.

Historically, late spring to early summer has been the peak home buying season in the US, but there are many signs that buyers have become discouraged.

The number of Americans applying for mortgages has dropped significantly compared to a year ago. Weekly mortgage applications tracked by the Mortgage Bankers Association are down about 50% compared to a year ago. A decline in mortgage applications may indicate a slowdown in future home buying activity, as potential home buyers do not apply for a mortgage until they have settled on a particular home or condo.

Joe Luca, a realtor and former president of the Rhode Island Association of Realtors, said buyers will have to refine their search, settle for smaller homes, or choose a neighborhood further from the city center.

“People may be looking to buy a house in a very nice city in the best part of that city. Rates go up, so they can’t afford it, so they have to re-check what they buy,” he said .


Casey reported from Boston. Vega reported from Los Angeles. Associated Press reporter Jesse Bedayan contributed to this report from Denver.

World Nation News Desk
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