House hunters on the “demoralizing” process of buying a house in a crazy market. One ad had 30 bids – and sold for $85,000 above asking.

Over the past year, the average rate on a 30-year fixed mortgage has gone from 3.69% to 6.7%, according to Freddie Mac. That number last week touched 7%, before falling this week, based on Daily Mortgage News daily survey.

“It became a numbers game,” Kankariya said.

Soaring rates pose a “growing threat to the single-family housing market and the broader economy,” Mark Zandi, chief economist at Moody’s Analytics, wrote in a note.

“The extent of the damage will largely depend on how high mortgage rates are and how long they last,” he added.

It’s no surprise that this weighs on house hunters. For example, 15% of homes in Sun Belt cities that were on contract in August failed, or about 64,000 homes nationwide had their bids dropped, according to a recent report by real estate brokerage Redfin. Corp. RDFN,
+6.16%
found.

They include the once-pandemic boomtowns of Las Vegas, Phoenix, Tampa and Texas. A year ago, only 12.1% of home buyers were abandoning transactions.

And one report by Coldwell Banker Warburg published this week said New York City had become a “tornado market”.

Frederick Warburg Peters, chairman of Coldwell Banker Warburg and author of the report, said: “A tornado is completely unpredictable – no one knows what path it will take. And he can raze a house to the ground while leaving the neighboring house untouched,”

Homebuyers can’t take a break

Potential first-time buyers like Kankariyas are ‘effectively shut out of home ownership given the collapse in affordability as higher mortgage rates merge with property prices that have been inflated by previously extremely low rates said Zandi.

Kankariya and his wife are both looking to buy a house in North Jersey, near the Hudson River.

They started looking to buy a house during the pandemic, which was a “chaotic and unsatisfying experience”, Kankariya said, as they only had 15 minutes to see inside their house and had to submit an offer on same day or the next day. daytime.

For a first-time buyer like him, it was “agonizing,” Kankariya said, “because it’s the biggest purchase you’re going to make,” let alone a 24-hour decision.

The Kankariyas were looking for a new home, ideally a duplex or multi-family home, given the difficult supply chain issues that can complicate and prolong the renovation of an existing home.

But they continued to outbid the houses they liked, even though they always went above and beyond the demands. “That was about right, give us your best number and cross your fingers,” Kankariya said.

“That’s when we decided to find an apartment…and try to wait for all this pandemic madness to end,” he added.

But now that the market is cooling, rates are taking off instead. “We all sort of saw the writing on the wall in terms of mortgage rates going up,” Kankariya said, but “I don’t think we really appreciated how much they would go up.”

“It just feels like the middle class is being pushed out,” social studies professor Erin Piedmont, who recently sold her home in Alabama and moved to Georgia for a new job, told MarketWatch.

Piedmont, 40, and her husband are also looking to buy a single-family home in Savannah, Georgia, closer to her job at Georgia Southern University. She is currently renting a single family home because they keep outbidding the homes they like downtown.

They started looking for homes in May. One of the homes they really liked got 30 offers in two days and sold for $85,000 more than asked. And the buyer paid cash.

A recent weekend spent looking for a house was also a failure. They saw a charming single-family home that, although it needed updating, looked promising. But the real estate agent showing them the house said a potential buyer was looking at the property with the intention of turning it into Airbnb ABNB,
+5.53%.

Rates were another matter. When Piedmont spoke with a mortgage lender in April, before her move to Savannah, she was listed at 4.5%. When she did the paperwork to get pre-approved after 90 days, since the couple had yet to purchase a home, they were quoted at 6%.

“People with lots of money will still be able to buy a home right now, even with higher interest rates. It’s the middle class who can’t afford the rates right now,” Piedmont said .

“The higher the interest rates, the more our budget keeps getting pushed down and down and down. We can’t even find something we really want,” she said. added, “We were so excited to buy a house, and it was a little demoralizing.”

Homebuyers are being pressured to act quickly as rates fluctuate

With mortgage rates rising and 30s briefly touching 7%, home ownership has become much more expensive in 2022.

Coupled with the fact that home prices have yet to come down from their highs, affordability has been a major issue for potential buyers.

The median price of an existing home is $389,500, up 7.7% from a year ago, the The National Association of Realtors said in late September.

“The monthly mortgage payment for a median-income household looking to buy the home at the median price with a 20% down payment at the prevailing mortgage rate is about $2,000, up $700 from a year ago. a year,” Zandi said.

And rates won’t come down ‘until it’s clear the Fed has halted its rate hikes, and that’s unlikely until well after the home sales season in the spring of next year’ , added Zandi.

High interest rates are “kind of a bummer,” audio engineer Josh Lewis, 36, told MarketWatch.

Lewis and his wife, both Army veterans, plan to sell his current home in suburban Los Angeles to move to Seattle.

They had bought their house for $400,000 about eight years ago, and it has since appreciated to more than $600,000.

Lewis said he was looking for homes in the Tacoma area and planned to settle down for five years and focus on going back to school and earning a master’s degree.

Lewis said he was able to find decent homes for his budget, under $500,000. “But interest rates are rising rapidly,” he said. “Over the past six months, they’ve changed so much that our price range keeps adjusting. So the faster we can get up there, the better we can hang on to low interest rates.

The Piedmonts have sold their home in Florence, Alabama for $420,000. They had just refinanced their home for 2.8%, which was “kind of a dream,” she said. They had paid $317,000 for it.

Expect house prices to drop soon: experts

Both Kankariyas and Piedmonts have been stuck playing the waiting game and renting while they try to buy their homes.

But they might get lucky soon: Zandi expects house prices to “come down to earth quickly,” based on its projections.

Barring a recession, he expects house prices to fall 10% from peak to trough and bottom in the summer of 2024.

But if the economy turns and a recession hits, peak-to-trough declines could approach 20%, Zandi added, and parts of the South and the Mountain West could eventually see declines of more than 30%.

A majority of a panel of experts surveyed by Zillow Z,
+6.95%
expect the housing market to tilt in favor of buyers by 2023.

“What that really means is there’s a shift in bargaining power,” Jeff Tucker, senior economist at Zillow, told MarketWatch. Sparkling markets like Phoenix and Seattle have already started to cool in recent months, he added.

“Prices have to come down at some point,” Kankariya said.

Piedmont added that his old home in Alabama was sold to someone who planned to remodel the house — and turn it into an Airbnb.

Are you looking to buy or sell your home? Do you have ideas on the housing market? We’d love to hear from you – write to MarketWatch reporter Aarthi Swaminathan at [email protected]