Detroit-area homeowner Adam Hobart began searching last year for a new home with more bathrooms, a bigger yard for his dog and space for his aging mother.
But he called off his search after a surge in borrowing costs pushed the properties he was considering out of his budget.
Now the 38-year-old, who bought his current bungalow five years ago and set a low interest rate on his home loan during the pandemic, says he’s focused on saving and doesn’t expect to move for at least another year.
“I’ve mentally paused my search for a bit,” he says.
Adam’s decision to put his search on hold suggests a shadow is forming over the housing supply in the US, where 30-year fixed-rate mortgages are typical and the sudden rise in interest rates has made it unusually expensive for homeowners to upgrade . At the same time, it limits the savings they could make from downsizing.
The momentum is causing a freeze among potential sellers, keeping inventories under control and depressing prices in a country already grappling with housing shortages and an affordability crisis.
“With interest rates around 6.5%, it’s going to be very expensive to give up your house,” says Daryl Fairweather, chief economist at brokerage firm Redfin, which predicts US homes this year will see their lowest rates since the early 1980s. stay as a potential seller like Adam.
The US was already experiencing a decade-long decline in floating rates, alarming some economists, who have linked the shift to a reduction in economic opportunity.
Long-distance moves have picked up somewhat over the past year as the rise of remote work, a booming job market and ultra-low interest rates should boost the economy as the pandemic sparked a spending spree in 2020.
But overall, the proportion of Americans moving each year has remained below 9%, and Riordan Frost, a senior research analyst at Harvard’s Joint Center for Housing Studies, expects affordability issues related to higher interest rates to limit moves again in 2023 .
The decline in relocations, which he says was caused by high housing costs over the past decade, is a major shift for a US that once had an unusually mobile population, with the rate of relocation more than double the current rate since 1987 .
There have been particularly sharp declines among younger people and tenants, who tend to move more frequently.
“There are reasons not to get excited about a lower rate of mobility, meaning that people could be happier in their homes – and we want that,” says Mr Frost. “It could also mean that people are stuck in place.”
The number of homes sold in the U.S. plummeted about 17% last year as interest rates hit a 15-year high, adding hundreds of dollars to the typical monthly mortgage payment and putting an estimated one-fifth of buyers out of business , according to the National Association of Real Estate Agents.
Despite the drop in demand, prices still rose nearly 10% as supply remained tight.
Forecasts of what will happen next when the critical spring selling season begins vary widely.
The median price of homes sold in February fell 0.2% year-on-year – the first such decline in more than a decade.
Some analysts expect prices to fall further, with at least one forecasting a fall of up to 15% this year.
But while some cities are seeing declines, the US as a whole has so far avoided the larger declines in some other countries as inventories remain near historic lows.
In Canada, for example, prices are down 19% year over year in February, while in Australia they are down nearly 8%.
In the UK, the average price of homes sold in March is down 3% compared to 2022, according to Nationwide.
“Even though demand has cooled, we still see that there isn’t enough housing,” says Nadia Evangelou, senior economist at the National Association of Realtors, which forecasts prices to fall a modest 1.6% this year despite mortgage rates hovering around 6.5% – roughly double what they were in early 2022.
Overall, prices are up 42% nationwide from 2019 to 2022, meaning few long-time owners are losing out on the sale.
But the number of houses put on the market has fallen sharply. Seasonally adjusted numbers from Redfin show there were just under 465,000 new listings nationwide in February — the lowest level in more than a decade, excluding the peak of the pandemic lockdowns in 2020.
“Buyers are jumping back into the fray as the new normal in interest rates kicks in. However, homeowners who would normally sell their home have the golden handcuffs of yesterday’s installments, making it much more appealing to stay there,” said Rachel Mehmedagic, owner of Windermere Real Estate’s Mercer Island office in the Seattle area.
Seattle has seen one of its biggest declines in homes for sale, with new listings down more than 40% in February from a year ago.
Seattle renter Ryan Boyle and his wife have been looking for a home to raise a family for more than a year. In the beginning, they faced stiff competition and staggering prices. Though the frenzy seems to have subsided, he says properties that meet their needs and are within their budget are few and far between.
“My wife spends four hours a day looking at houses. We’ve seen all the offers and are constantly monitoring the market,” says the 31-year-old.
“If we can find an apartment that’s priced correctly, particularly based on interest rates, then we’d move on a bit. But I don’t feel like there’s a ton of inventory.”
First-time buyers accounted for just 26% of home sales last year — the lowest number since the National Association of Realtors began tracking the number.
Adam Hobart says he feels lucky he “got in the door before it closed” and sympathizes with the hurdles faced by shoppers trying to come after him. But he sees no easy solution to their problems.
When he does find an apartment, Adam says the monthly cost of his current home is low enough — about $900 — that he hopes to keep it as rent.
“Because I have this low-interest mortgage, I can see myself eventually paying it off, and that becomes part of a future retirement plan,” he says. “I say, ‘Shoot, am I part of the problem?’ But you have to take care of yourself to a certain extent.”
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