For many people, 2022 would be the year they finally bought a home. However, as the year closes, first-time buyers put aside their ambition of purchasing a home.
Evan Paul and his wife had wanted to buy a house this year. Both work as scientists in biotech businesses in the United States. Even with their combined salary, they could not keep up with the market’s high house prices. Evan and his wife have already had a daughter this year. But their hope of finding a new home for their daughter would have to wait.
“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.
Because of the market’s high property prices, the couple needs assistance closing a transaction with home sellers. So Paul started looking for a house while mortgage rates were low. However, other purchasers outbid them before they could find a property within their price range.
“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, the housing market grew more expensive as the Feds insisted on raising interest rates to combat the country’s growing inflation. Mortgage rates rose as a result. And in the end, it resulted in exorbitant property prices, which Paul could not afford. Moreover, Paul and his wife could not pay the charges.
“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.
Home buyers are holding off
The housing market has been frozen due to the sharp increase in mortgage rates for many months in 2022. Buyers stopped looking for homes since they realized that cheap housing was difficult to come by, given the country’s economic situation.
Furthermore, sellers suffer from high mortgage rates that will damage them. According to Lawrence Yun of the National Association of Realtors, individuals are stranded. Yun also stated that the housing market is now ‘frozen.’ According to the NAR, house sales have been flat for the past ten months.
“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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Prices are high but have stayed stable. This is owing to the market’s limited inventory. As a result, unsold properties were about 1.14 million in November, down for the fourth month. According to a recent poll, housebuilder confidence is also low due to lower home sales.
“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.”
Because the market activity is minimal, home builders refuse to develop new homes. Building more houses would incur additional costs for building businesses, but home builders would be hesitant to spend their money without an immediate return on investment. This is ultimately due to the high prices produced by mortgage and interest rates.
“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