First-time home buyers in the United States feel ‘defeated’ by soaring prices and rising rates

By Jonnelle Marte

(Reuters) – Brianna Lombardozzi finally has her finances at a point where she might be able to buy a house. But she doesn’t feel too good about her chances.

Lombardozzi, 37, used his federal stimulus checks and other savings accumulated during the pandemic to pay off the majority of his credit card debt – a move that helped his credit rating increase by nearly 100 points.

But competition is intense for homes in its $175,000 to $225,000 price range in Central, South Carolina, and it has had four bids rejected in the past month. Now that mortgage rates are rising, she doesn’t know if she’ll find an affordable property before her lease ends at the end of May.

“Right now I feel a bit defeated,” said Lombardozzi, who works in housing for a local university.

As house prices soar, housing affordability falls to its lowest level since 2008 and first-time buyers – who have not benefited from the rise in home values ​​and who also face the rising rents – are squeezed out.

First-time buyers accounted for 27% of existing home sales in January, according to the National Association of Realtors, near 2014 levels. With mortgage rates above 4%, about the highest in about three years, and expected to increase further, buyers on tight budgets may find it even more difficult to find affordable housing.

Chart: First Home Buyers Evicted:


Housing demand has soared during the pandemic as buyers have taken advantage of record mortgage rates and remote workers seek more living space. Some people, like Lombardozzi, saved money that they would typically have spent on travel or dining out when much of the economy was shut down, leaving them with more money to potentially invest in a House.

At the same time, the number of homes for sale fell as some owners stayed put amid uncertainty and supply chain disruptions and labor shortages slowed the construction of new ones. houses.

While some imbalances are easing, the supply of homes for sale at the end of January was at an all time high – just enough to last 1.6 months, according to NAR data. This forces buyers to compete on limited listings and drive up prices.

At the end of 2021, housing affordability fell to its lowest level since November 2008, with households earning the median income having to spend nearly 33% of their income to pay payments for a median-priced house, according to the Atlanta Federal Reserve. Housing is generally considered affordable when households spend no more than 30% of their income on housing.

Affordability could be further strained by rising mortgage rates. Some people who had been pre-approved for a mortgage may find that they no longer qualify for the same maximum loan amount after mortgage rates rise, said Jennifer Beeston, senior vice president of mortgages for guaranteed rate. , a mortgage lender.

First-time buyers are already struggling to compete with all-cash offerings, including those from institutional investors such as private equity funds, which take a larger share of purchases and are seen as less risky by sellers, according to analysts. Cash purchases accounted for 27% of sales in January, up from 19% a year earlier, according to NAR.

And some new buyers are outbid by people with enough money to pay more than a mortgage banker is willing to lend, based on the home’s appraised value, said Erica Barraza, a real estate broker in the Seattle area.

Chart: Homeownership is becoming less affordable:


Many potential buyers find they have to raise their budgets or lower their standards just to have a chance of winning an auction. They also need to act quickly, viewing homes the day they go on the market, and making offers within a day or minutes of viewing.

These conditions are hitting morale: A Fannie Mae survey found that only 29% of respondents think now is a good time to buy a home, near a record high for a series that launched in 2010. “What I spend 50% of my time doing now is pep talks,” said Beeston, who works in the mortgage industry.

Jason Harrison and Jamar Haggans are just beginning their home buying search, but they’re already lowering their expectations.

Their search for a three-bedroom, two-bathroom home in Kansas City, Missouri, priced under $450,000 found only 10 to 20 new homes per day. Many sell out within a day or two – often well above the asking price.

After reviewing the quality of the homes listed, they’ve increased their budget by $75,000 and are worried about overpaying.

“My biggest fear right now…is that if we want to have a house, we’ll have to pay more than it’s really worth,” Harrison, 36, said.

Harrison and Haggans aren’t willing to give up home inspections or appraisals, which they say will make them less attractive than buyers willing to make those concessions. They hope more people will list their homes in the spring.

Delaying a home search also has costs for buyers faced with rising rents.

Lombardozzi, who has lost at least one bid to an all-cash bid, estimates she has about a month to find a home before she has to start looking for rentals.

The house she has rented for six years was recently sold and she says comparable rents are 20-40% more than what she is paying now.

She started looking for homes in January, and data from the Mortgage Bankers Association shows home loan costs rose about three-quarters of a percentage point in that window, reducing the amount she can borrow if she wants to keep the monthly mortgage payment at a level she can afford.

“By the time I can actually get an offer accepted, how much will the rates have gone up?” she says. “Will I just not be able to buy a house period?”

(Reporting by Jonnelle Marte; Editing by Dan Burns and Andrea Ricci)

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