The Agony of House Hunting In Today's Home Sale Market
- Author: Chris Remington
- Posted: 2024-07-16
The Covid-19 economy required historically low interest rates to keep the US economy going during shutdowns and restrictions. The Federal Reserve performed its mission, and home loan interest rates fell to all-time lows. Buyers that acted during the early part of the Coviod-19 shutdowns could get mortgage financing at or below two percent (2%).
The low mortgage rates formerly reserved for those with the best financial capacity and flawless credit histories went to ordinary buyers for homes within the range of the national average. The stock of available housing on the market was generally ample. Existing home owners also saw the opportunity to sell and purchase larger or more luxurious homes at the wonderfully low interest rates.
As 2021 wound down, the markets began to change. The abundance of available housing for sale began to shrink. In the first quarter of 2022, many markets had little to no available housing. The trickle of available homes for sale caused prices to rise sharply.
Low Inventory Meets High Prices
In the first quarter of 2022, home buyers had to search for available homes for sale. When finding them, buyers were often in a queue of offerors ready to meet or exceed the asking price. Low inventory met high demand, and the result was an agonizing experience for would-be home buyers. The causes of low inventory vary by area and market. A common cause is the low level of new homes coming on the market.
Disruptions in the global supply chain have limited availability of new homes. Contractors may not be able to finish projects and must delay starting new building when supplies and materials are unavailable, late, or overpriced. Builders may also cancel or delay future project plans and contribute to long term shortages of new housing.
Internet marketing is a factor in many big city markets. Cities like Seattle, Miami, and New York attract investment from across the U.S. and around the globe. The wide range of potential buyers and investors puts upward pressure on prices by increasing demand.
Mortgage Rates Begin the Long Climb
Buyers feel the need to rush to lock-in interest rates before they rise further in 2022. The search for lower interest rates drives much of the current demand. The US Federal Reserve announced plans to raise interest rates during calendar year 2022. The January 27,2022 year-to-date comparison to 2021 showed a substantial increase. This pattern follows increases that occurred in 2021. According to the Mortgage News Daily the January 2022 average rate was 3.67 percent. The January 2021 average mortgage rate was 2.80 percent.
Competing For Chances To Buy
Buyers can experience frustration and disappointment in the current market. Across the country, buyers find it difficult to find available homes for sale. A typical experience might find a home buyer to an open house where the owner might have several offers in hand within hours of opening the doors. Buyers report bidding above asked prices and open competitions for homes.
New and first-time buyers are most at risk of being left out. These buyers typically do not have extra cash to bid above asking prices and bank appraisals. Demand appears to be high in the overall range of housing. In many cities, low vacancy rates reflect the low availability of homes for sale. Rent prices rise and leave many residents with a poor choice between high rents and high home prices. High rent prices and low vacancy rates drive demand for home purchases.
The Outlook Is Hopefully Optimistic
The supply chain problems, low inventory, and high demand will not likely go away. These market forces may subside and lower the barriers to home ownership. The supply chain may improve with time and effort by the leading governments. Inventory may increase as interest rates diminish demand, and buyers may feel less motivation to overbid and drive up the price of housing.
The double benefit of supply chain improvement is in the increased flow of new housing into the market and acceleration in planned housing. The available housing will stabilize as interest rates and new housing slow the pace of sales. Today, many buyers still seek to capture the best interest rates of recent decades before they rise to historic normal levels.
