2022 would have been the year many people finally purchased a home. But as the year comes to a close, first-time purchasers put off realizing their dream of home ownership.
This year, Evan Paul and his wife intended to buy a house. In American biotech firms, they are both hired as scientists. They could not keep up with the market’s high house prices, even with their combined salary. This year, Evan and his wife welcomed a daughter. But they would have to put off their desire to provide their daughter with a new home.
“We just kind of got to that place in our lives where we were financially very stable, we wanted to start having kids, and we wanted to just kind of settle down,” said Evan, 34.
Due to the high costs of homes on the market, the couple sought assistance in reaching an agreement with property sellers. Paul, therefore, started his property hunt when interest rates were low. However, before he could find a house within their price range, other purchasers outbid them.
“There’d be, you know, two dozen other offers, and they’d all be $100,000 over asking. So any time we tried to wait until the weekend for an open house, it was gone before we could even look at it,” recalled Paul.
Unfortunately, as the Fed steadfastly increased interest rates to stop the nation’s inflation from worsening, the housing market became more expensive. Rates on mortgages increased as a result. Ultimately, it resulted in exorbitant property costs that Paul could not easily afford. Paul and his wife couldn’t afford the expenses since they were so expensive.
“At first, we started lowering our expectations, looking for even smaller houses and even less ideal locations. Then, the anxiety just caught up to me, and we just decided to call it quits and hold off,” he said.
Stuck home buyers
The home market has been frozen due to the prolonged, sharp rise in mortgage rates in 2022. Since they were aware that it was difficult to find inexpensive residences given the country’s economic situation, buyers stopped looking.
Also, sellers are suffering due to the high mortgage rates that would apply to them. According to Lawrence Yun of the National Association of Realtors, people are trapped, and the housing market is currently “frozen.” House sales remained flat for ten months, according to NAR.
“Existing-home sales fell for the tenth month in a row in November 2022, with all regions of the U.S. recording month-over-month and year-over-year declines,” NAR wrote in a press release.
“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020. The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows,” added Yun.
“The market may be thawing since mortgage rates have fallen for five straight weeks. The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year.”
“The sellers aren’t putting their houses on the market and the buyers that are out there, certainly the power of their dollar has changed with rising interest rates, so there is a little bit of a standoff,” explained Susan Horowitz, a real estate agent from New Jersey.
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Home inventory is low
Although prices are high, they have not changed. And the lack of market inventories is to blame. The number of unsold properties fell for the fourth straight month in November to almost 1.14 million. According to a recent poll, the decline in house sales has also decreased home builders’ confidence.
“Anything that comes on the market is the one salmon running upstream, and every bear has just woken up from hibernation,” adds Horowitz.
“A year ago, this probably would’ve already sold. This home will sell, too. It’s just going to take a little bit longer.”
Due to the lack of demand, home builders refuse to construct new homes. The cost of adding additional homes would increase for the building industry, but without an immediate return on investment, home builders would not be willing to risk their cash. In the end, exorbitant costs brought on by mortgage and interest rates are to blame.
“NAHB is expecting weaker housing conditions to persist in 2023 and forecasts a recovery coming in 2024. Given the existing nationwide housing deficit of 1.5 million units and future lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” said the chief economist of the National Association of Home Builders (NAHB), Rober Dietz.
“A slowdown in new construction is concerning because the housing market remains underbuilt relative to the long-term demand,” added Odeta Kushi, First American deputy chief economist.
“With many existing homeowners locked into historically low, sub-3% mortgage rates, few have a financial incentive to sell their home only to purchase a new one with a much higher mortgage rate. A lack of existing-home inventory means that new home construction will be more essential in bridging the supply gap,” she added.
Photo Credit: Mike Blake for Reuters