CHICAGO (NewsNation) — It’s the American dream to buy a home, but right now, experts worry the housing market might be headed for a shake-up.
Rising mortgage rates have combined with already high home prices to discourage would-be buyers. Mortgage applications have declined sharply. Sales of previously occupied homes have fallen for five straight months, during what is generally the busiest time of year in real estate.
In June, sales of previously owned homes fell 5.4% from May, according to a monthly report from the National Association of Realtors, as prices set records and rates surged. Sales were 14.2% lower compared with June 2021.
The rate on a 30-year mortgage averaged around 5.51% last week, according to mortgage buyer Freddie Mac; a year ago it was close to 2.88%. The increase in rates is leaving buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home, choose to live in a less desirable neighborhood or drop out of the market, at least until rates come down.
Weekly mortgage applications tracked by the Mortgage Bankers Association are down roughly 50% from a year earlier. The decline in mortgage applications could signal a slowdown in future home buying activity since potential home buyers do not apply for a mortgage unless they have settled on a particular home or condo.
Joe Luca, a realtor and past president of the Rhode Island Association of Realtors, said buyers are having to refine their search, settling for smaller homes, or choosing a neighborhood further from a city center.
“People may be looking to buy a house in a really nice town in the best part of that town. Rates go up so they can’t afford that, so they need to recalibrate what they are going to buy,” he said.
All signals point toward the Federal Reserve continuing to raise interest rates to combat inflation, promising little relief for potential buyers at least for the rest of the year. Experts also blame supply chain issues and the pandemic.
“Right now, it’s going to be more challenging for buyers than it is for sellers and that likely will be true for the next several months,” said Joey Von Nessen, a research economist
On top of that, the median price for an existing home is $416,000 — a record high.
“We’ve had record-setting years for appreciation, the average appreciation for a home is anywhere between 4 to 6 percent and it’s gotten above anywhere 18 to 20 percent this last few years,” said GP Theriot, a mortgage advisor.
It’s a tough housing market right now, but Armando Alvarez, a realtor, said he believes that this is the market balancing out.
“What we think is going to happen, it’s going to start inching to that middle ground, which is 6 months of inventory. that’s a healthy market, that’s what people want to see,” Alvarez said.
The market has changed dramatically for sellers as well.
Raymond Martin and his wife listed their home in Austin, Texas, for sale for $1.1 million in early May. They figured selling the four-bedroom, three-bath house would be “a walk in the park.”
The couple had reason to be optimistic. As recently as this spring, it wasn’t unusual for sellers to receive multiple competing offers within hours of listing their home, or for some buyers to agree to pay well above asking price while giving up their right to a home inspection — all to beat out rival bidders. It was very much a sellers’ market.
Instead, the Martins have yet to receive a single offer and have lowered their asking price to $899,000. Raymond Martin, 51, noted that shortly before listing his Austin home, a neighbor sold their similar-sized home for $100,000 over the $1 million asking price.
The Associated Press contributed to this report.