Rising mortgage rates, tight supply and high prices frustrate home hunters

Shoppers head to an open house in Waldorf, Maryland.

Lisa Rizolo | CNBC

The country’s housing market has never been tighter, which is quite frustrating for house hunters, but now they have another problem.

Mortgage rates, which have hovered around historic lows since the start of the Covid pandemic, are now on the rise. It’s what one potential buyer called “a perfect storm.” Another described it as “agony”.

At a Sunday open house in Waldorf, Md., last weekend, there were already three offers on the three-bedroom home before it even started. On Tuesday, the agent’s deadline, there were nine.

“We’re stuck between a rock and a hard place,” said Rondie Robinson, who was there with his wife and daughter. Robinson said he recently got a new job and was looking to move to a bigger house.

“We thought that due to the winter months where it would loosen up a bit, prices would start to go back to normal, but that’s not happening,” he said. “It’s anguish, it’s pain, it’s agony.”

Limited supply weighs on sales. Pending home sales, which represent signed contracts on existing homes, fell more than expected from November through December, down 3.8%, according to the National Association of Realtors. Real estate agents attribute the drop to an extreme shortage of homes for sale, not a lack of demand.

New seller registrations were down 8% year over year for the week ended Jan. 22, according to Realtor.com. These listings have been below historic levels for eight of the past 10 weeks. As a result, active inventory, which is the total number of homes for sale, is down 28% from a year ago.

Buyers are heading out early this year, hoping to jump into the usually busy spring market. They also fear that, in an already expensive housing market, rising mortgage rates will force them out.

“Between impending rate hikes, rising home prices and soaring rents, homebuyers today have plenty of incentive to close while monthly costs may still be affordable,” said Danielle Hale. , chief economist at Realtor.com.

The combination of strong demand and low mortgage rates over the past two years has pushed home prices up at the fastest pace in several decades. As year-over-year gains begin to taper nationwide, prices are still at record highs, up nearly 19% last November from November 2020, according to the index. S&P Case-Shiller.

“We don’t want to wait, because probably when it gets warmer, more homes come on the market and prices go up, it’s just going to be kind of like the worst case, like the perfect storm where things really go up,” said Mike Williams, who was at the open house in Maryland.

The house was priced at $375,000, just around the national median. But the rate hike means the monthly payment is now about $200 more than a year ago and $100 more than just three weeks ago. The average 30-year fixed mortgage rate was below 3% at the start of last year and is now hovering around 3.7%.

“Everyone is worried that the competition will mean that first-time home buyers, in particular, don’t have a head start, they won’t be able to compete,” said Duke Walker, loan officer at Movement Mortgage. in Washington, D.C.

Walker said his phone kept ringing with calls from potential buyers looking to lock in their rates now before they move higher. Mortgage applications to buy a home jumped 8% in the second week of this month compared to the first, according to the Mortgage Bankers Association.

“In the last two weeks in particular, you’ve seen a significant increase, not just with mine, but industry-wide, all of my contemporaries are seeing their app matter as well,” Walker said.

More competition in the midst of limited supply will only make the competition fiercer. Homes are now selling on average 10 days faster than they did a year ago, according to Realtor.com.

Kyo Freeman of City Chic Realty, who is the agent for the Maryland home, said he expected from the start to see it sell well above the list price, just as many have done l ‘last year.

“Looks like we’re going to see a lot of similar bidding wars,” Freeman said. “Any property that is really really high interest will have a lot of offers, and it will be difficult for someone on a budget to be able to compete for those.”

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