For many citizens, 2022 would have been the year they finally bought a home. However, as the year ends, first-time buyers hold off on their dream of owning a house.
Evan Paul and his wife hoped to purchase a house this year. Both of them are employed scientists in biotech companies in the United States. However, even with their combined income, they could not keep up with the high prices of homes in the market. Evan and his wife already have a baby girl this year. But their dream to give their daughter a new house 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.
The couple needed help sealing a deal with home sellers because of the high prices of houses in the market. So Paul began searching for a home when interest rates were low. However, other buyers outbid them even before he could find a home fit for their budget.
“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 became pricier after the Feds insistently hiked interest rates to stave off the worsening inflation in the country. As a result, mortgage rates climbed. And ultimately, it led to high prices, a range that Paul could not readily pay. The prices were too high for Paul and his wife to afford.
“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.
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Home buyers are stuck
With the steep increase in mortgage rates for many months in 2022, there has been a freeze in the housing market. Buyers stopped searching for homes since they knew that affordable homes were hard to get by considering the economic conditions faced by the country. Moreover, sellers are also aching owing to the high mortgage rates that would affect them. Lawrence Yun from the National Association of Realtors said that people are stuck. Yun added that the housing market is somehow ‘frozen’ at the moment. According to NAR, for ten months, home sales were stagnant.
“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 they have remained stagnant. And this is due to the low inventory in the market. In November, unsold houses were around 1.14 million, falling for the fourth consecutive month. In a recent survey, builder confidence is also low because home sales are down.
“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.”
Home builders refuse to build new houses because the market activity is low. Building more houses would mean another cost for construction companies, but without an immediate return on investment, home builders could not risk spending their capital. Ultimately, this is caused by the high prices brought on 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.