House hunters on the 'demoralizing' process of buying a house in a crazy market. One listing had 30 offers — and sold for $85,000 above asking. - MarketWatch

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Original source: MarketWatch
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Published: Oct 5th, 2022
House hunters on the 'demoralizing' process of buying a house in a crazy market. One listing had 30 offers — and sold for $85,000 above asking. - MarketWatch

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“It’s become a numbers game,” Kankariya said.
They started looking to buy a home during the pandemic, which was a “chaotic, unfulfilling experience,” Kankariya said, as they only had 15 minutes to see the inside of their homes, and had to submit an offer the very day, or next day.
(Picture courtesy of Riddish Kankariya) For a first-time buyer like him, it was “nerve-wracking,” Kankariya said, “because this is the biggest purchase you’re gonna make,” let alone a decision to make in 24 hours.
“It was pretty much just, give us your best number, and cross your fingers,” Kankariya said.
“We all kind of saw the writing on the wall in terms of the increase in mortgage rates,” Kankariya said, but “I don’t think we had any real appreciation for how drastically they would go up.
“Prices have to come down at some point,” Kankariya said.
Now, potential home buyers are struggling with sky-high mortgage rates.

House hunters on the 'demoralizing' process of buying a house in a crazy market. One listing had 30 offers — and sold for $85,000 above asking. - MarketWatch

First, they had to battle the pandemic-induced buying frenzy. Now, potential home buyers are struggling with sky-high mortgage rates. Between the start of the summer and into the fall, there’s a “day and night difference,” Riddish Kankariya, 37, told MarketWatch. “It’s crazy. It’s kind of like the pressure we were under when it came to viewing homes and putting in bids at the start of COVID.” In the last year, the average rate for a 30-year fixed mortgage has jumped from 3.69% to 6.7%, according to Freddie Mac. That number in the last week touched 7%, before sliding down this week, based on Mortgage News Daily’s daily survey. “It’s become a numbers game,” Kankariya said. Surging rates pose a “developing threat to the reeling single-family housing market and broader economy,” Mark Zandi, chief economist at Moody’s Analytics, wrote in a note. “‘It just feels like the middle class is getting pushed out.’” — Erin Piedmont, a professor of social studies in Savannah, Ga. “How bad the damage will be, largely depends on how high mortgage rates go and for how long,” he added. It’s no surprise that this is taking a toll on house hunters. For instance, 15% of homes in cities in the Sun Belt that went under contract in August fell through, or roughly 64,000 homes nationwide saw deals dropped, a recent report from real-estate brokerage Redfin Corp. RDFN, +6.16% found. They include once-pandemic boomtowns of Las Vegas, Phoenix, Tampa and Texas. A year ago, only 12.1% of home buyers were backing out of deals. And a report from Coldwell Banker Warburg released this week said New York City has become a “tornado market.” Frederick Warburg Peters, president of Coldwell Banker Warburg, and author of the report, said, “A tornado is completely unpredictable — no one knows what path it will take. And it can raze one house to the ground while leaving the neighboring house intact,” Home buyers can’t catch a break Potential first-time buyers like the Kankariyas are “effectively locked out of homeownership given the collapse in affordability as higher mortgage rates conflate with house prices that were juiced-up by the previously exceedingly low rates,” Zandi said. Kankariya and his wife both are looking to purchase a home in North Jersey, by the Hudson River. They started looking to buy a home during the pandemic, which was a “chaotic, unfulfilling experience,” Kankariya said, as they only had 15 minutes to see the inside of their homes, and had to submit an offer the very day, or next day. Riddish Kankariya and his wife, Chandni. (Picture courtesy of Riddish Kankariya) For a first-time buyer like him, it was “nerve-wracking,” Kankariya said, “because this is the biggest purchase you’re gonna make,” let alone a decision to make in 24 hours. The Kankariyas have been looking for a new home, ideally a duplex or a multi-family home, given the tough supply-chain issues that may complicate and prolong remodeling an existing one. But they kept getting outbid on homes they liked, even though they had consistently gone above asking. “It was pretty much just, give us your best number, and cross your fingers,” Kankariya said. “So that’s when we decided to find an apartment …and try to wait out this whole pandemic craziness,” he added. But now that the market is cooling off, rates are taking off instead. “We all kind of saw the writing on the wall in terms of the increase in mortgage rates,” Kankariya said, but “I don’t think we had any real appreciation for how drastically they would go up.” “It just feels like the middle class is getting pushed out,” Erin Piedmont, a professor of social studies, 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, Ga., closer to her job at Georgia Southern University. She is currently renting a single-family home because they keep getting outbid on homes that they like in the downtown area. Erin Piedmont with her daughter. (Picture courtesy of Erin Piedmont) They first started looking for homes in May. One of the homes they really liked had 30 offers in two days, and was sold for $85,000 over asking. And the buyer paid in cash. A recent weekend spent house hunting was also a bust. They saw a charming single-family home which despite needing to be remodeled, looked promising. But the realtor who was showing them the house said that a potential buyer was looking at the property with the intention to turn it into an Airbnb ABNB, +5.53% . Rates were another matter. When the Piedmonts spoke with a mortgage lender in April, prior to her moving to Savannah, she was quoted 4.5%. When she did the paperwork to get pre-approved after 90 days, since the couple had not purchased a home yet, they were quoted 6%. “People with a lot of money are still going to be able to buy a house 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 are hiked, our budget just keeps getting pushed down and down and down. We can’t even find something we really want,” she added. “We were so excited to buy a home, and it’s been kind of demoralizing.” Home buyers pressured to move fast as rates fluctuate With mortgage rates rising, and the 30-year briefly touching 7%, home ownership has become a lot 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 at $389,500, 7.7% higher from a year ago, the National Association of Realtors said in late September. Josh Lewis and his wife. (Picture courtesy of Josh Lewis) “The monthly mortgage payment for a household earning the median income looking to buy the median priced home with a 20% downpayment at the prevailing mortgage rate is about $2,000, up $700 from a year ago,” Zandi said. And rates won’t drop “until it is clear the Fed has ended its rate hikes, and that’s unlikely until well after next year’s spring home selling season,” Zandi added. The high interest rates are “kind of a bummer,” Josh Lewis, 36, an audio engineer, told MarketWatch. Lewis and his wife, both former army veterans, are planning to sell his current home in the Los Angeles suburbs to relocate to Seattle. They had bought their home for $400,000 around eight years ago, and it has since appreciated to over $600,000. Lewis said he’s been looking at houses in the Tacoma area, and plans to settle down for five years, and focus on going back to school and getting a master’s degree. Lewis said he’s able to find decent homes for his budget, of less than $500,000. “But the interest rates are moving up quickly,” he said. “Over the past six months, they’ve changed so drastically that our price range keeps adjusting. So the quicker we can move up there, the better we can snag the lower interest rates.” The Piedmonts sold their home in Florence, Ala. for $420,000. They had just refinanced their home for a 2.8% rate, which was “kind of a dream,” she said. They had paid $317,000 for it. The U.S. housing market is seeing a slowdown in home sales due to the Federal Reserve raising mortgage interest rates to help fight inflation. (Photo by Allison Dinner/Getty Images) Expect home prices to fall soon: experts The Kankariyas and the Piedmonts have both been stuck playing the waiting game and renting while they try to buy their home. But they could luck out soon: Zandi expects home prices to “quickly come back to earth,” based on his projections. Bar a recession, he’s expecting home prices to fall 10% peak-to-trough, and to reach a bottom in the summer of 2024. “A majority of a panel of experts surveyed by Zillow expect the housing market to tip in buyers’ favor by 2023.” But if the economy turns, and a recession hits, peak-to-trough declines could approach 20%, Zandi added, and parts in the South and Mountain West could possibly see declines of more than 30%. A majority of a panel of experts surveyed by Zillow Z, +6.95% expect the housing market to tip in buyers’ favor by 2023. “What that really means is that there’s a shift in negotiating power,” Jeff Tucker, senior economist at Zillow, told MarketWatch. Frothy markets like Phoenix and Seattle have already started cooling down in the last few months, he added. “Prices have to come down at some point,” Kankariya said. Piedmont added that her former home in Alabama was sold to someone who planned to remodel the home — and turn it into an Airbnb. Are you looking to buy or sell your home? Got thoughts on the housing market? We’d love to hear from you — write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
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