Housing market cools as mortgage rates and prices spook buyers – Greeley Tribune | Region & Cash

By KEN SWEET, MICHAEL CASEY and ALEX VEIGA

NEW YORK (AP) — Kyle Tomcak was looking for a home for his in-laws in the Denver suburbs, something at a cost of nearly $450,000.

Tomcak was discouraged when he lost to investors who offered cash offers of $100,000 over the asking price. Then mortgage rates skyrocketed, pushing his price range out of reach.

“All of a sudden your purchasing power is less… even though your payments are the same,” he said.

Tomcak, 39, and a project manager for a commercial painting company from Aurora, Colorado, was hoping to get a $2,350 monthly mortgage payment. His mortgage advisor recommended lowering the maximum price he would pay for a home to $300,000 and then to $200,000.

Tomcak has given up his search for the time being..

The Federal Reserve has aggressively raised short-term interest rates to fight inflation, which in turn is helping to push up interest rates on credit cards, car loans, and mortgages. Rising mortgage rates, combined with already high house prices, have deterred potential buyers. Mortgage applications have fallen sharply. Sales of previously occupied homes have declined for five straight months during what is generally the busiest time of the year for real estate.

According to mortgage buyer Freddie Mac, the interest rate on a 30-year mortgage averaged about 5.54% this week; a year ago it was almost 2.78%. The rise in interest rates leaves buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less attractive area, or exit the market, at least until interest rates come down.

All signals point to the Fed raising rates further, which promises little relief for potential buyers, at least for the remainder of the year.

Data provided to The Associated Press by real estate data company Redfin shows how much home a buyer could get with a $2,000 monthly mortgage payment. In Providence, Rhode Island, for example, a year ago the average buyer could have bought a roughly 4,900-square-foot home for that mortgage payment. Now that amount gets a buyer just a 2,200-square-foot home.

In Seattle, a hotter housing market, paying $2,000 a month this time last year would have got a buyer a modest 1,300-square-foot home. That kind of payment would only get them a 950 square foot apartment now.

“Put simply, people can’t afford the same house they could afford a year ago,” said Daryl Fairweather, economist at Redfin.

Rising interest rates are not only forcing potential homeowners to reconsider their home searches, but are also forcing a growing number of home-deal buyers to back out. About 60,000 home purchase deals fell through in June, accounting for nearly 15% of all homes signed in the last month, according to Redfin. That’s up from 12.7% in May and 11.2% a year ago.

For more than a decade, prospective homebuyers have been willing to accept rising home prices because the cost of a mortgage has been historically low. According to data from the Federal Reserve Bank of St. Louis, the average mortgage rate for a 30-year fixed-rate mortgage stayed below 4.5% for most of the last decade.

Financial data firm Black Knight estimates that the rise in mortgage rates has increased a typical borrower’s monthly payments by 44% since the beginning of the year. Since the pandemic began, the average mortgage payment has doubled to more than $2,100.

The biggest pain is felt at the bottom of the market: the first-time homebuyer, who often has the smallest amount of money for a down payment and is trying to match the monthly payment to his budget. Home sales priced below $250,000 fell more than 30% in June.

For those who can afford to buy a home even with higher mortgage rates, the slowdown in the housing market has a silver lining – more options. As homes receive fewer offers, they tend to stay in the market longer. The number of homes for sale, which has risen from extremely low levels since the spring, is up 18.7% year over year, according to Realtor.com.

The market has also changed dramatically for sellers.

Raymond Martin and his wife put their Austin, Texas home up for sale for $1.1 million in early May. They thought selling the four-bedroom, three-bathroom home would be “a walk in the park.”

The couple had every reason to be optimistic. As recently as this spring, it was not uncommon for sellers to receive multiple competing bids within hours of their home being listed, or for some buyers to agree to pay well over the asking price while giving up their right to a home inspection – all unbeatably competing bidders out. It was a strong seller’s market.

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

The couple are living in a new home in Florida while patiently trying to sell their Austin property. “The market has clearly stalled,” he said.

Historically, late spring through early summer has been the peak home buying season in the US, but there are several signs buyers are being discouraged.

The number of Americans applying for a mortgage has decreased significantly compared to last year. Weekly mortgage applications, tracked by the Mortgage Bankers Association, are down about 50% from a year ago. The drop in mortgage applications could indicate a slowdown in future homebuyers, as prospective homebuyers will not apply for a mortgage unless they have made a decision on a specific home or condo.

Joe Luca, a real estate agent and former president of the Rhode Island Association of Realtors, said buyers need to refine their search, settle for smaller homes or choose a neighborhood farther from downtown.

“People might want to buy a house in a really nice city, in the best part of that city. Prices are going up, so they can’t afford that, so they have to recalibrate what they’re going to buy,” he said.

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Casey reported from Boston. Veiga reported from Los Angeles. AP reporter Jesse Bedayn contributed to this report from Denver.

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