2022 real estate market forces buyers to skip inspections, pay way over asking – Yahoo Finance

If you’ve shopped for a house recently, you’ve likely become familiar with the new rules of real estate: You’re going to compete against multiple bidders, you’re going to pay over asking price, and you’re probably not going to find the home of your dreams.
The spring homebuying season is in full force, and weary buyers hoping to catch a break in the ultracompetitive market are seeing little change.
But after years of cheap borrowing costs that made homeownership attainable for many more Americans, contributing to a historically low supply of properties for sale that sent prices soaring, the U.S. housing market is facing new headwinds.
The fundamentals that have been fueling the real estate frenzy are shifting — and buyers and sellers are questioning how to navigate the market. Here’s an overview of where things may shake out on several fronts in the coming months.
After hitting a record low of 2.65% in January 2021, mortgage rates have climbed at their fastest pace in decades. The average 30-year fixed-rate mortgage has surged above 5%, and homebuyers now need to earn about $25,000 more a year to be able to afford the typical home, compared to where rates were last year.
Borrowing costs have risen sharply as the Federal Reserve has started raising its benchmark interest rate and implementing other new policies meant to slow the economy and curb rapid inflation.
Consumers expect rates on 30-year fixed-rate mortgages to average 6.7% next spring and soar to above 8% over the next three years, according to a survey from the Federal Reserve Bank of New York.
If rates do, in fact, go that high, they shouldn’t stay there for long, says Ralph McLaughlin, chief economist with Kukun, a real estate data and analytics firm.
“If mortgage rates get to the 7, 8, 9 percent range, I wouldn’t anticipate that to persist very long simply because the Fed would likely take action,” McLaughlin says. “It means there’s something else going on in the economy.”
He expects rates to settle no higher than around 6% over the next six months to a year as the mortgage market has already priced in the Fed’s planned interest rate hikes.
Housing has never been so expensive. Yet prices are expected to cool down gradually beginning late this spring, real estate firm Zillow says in its latest forecast.
The company expects home prices to grow about 15% over the next 12 months, down from its forecast of 16.5% last month.
The downward revision, Zillow says, reflects affordability headwinds that “have strengthened faster than expected, largely due to sharp increases in mortgage rates.”
Lilly Rockwell, a real estate agent with Compass in Austin, Texas, isn’t so sure that higher mortgage rates will slow the market — at least among the buyers she’s working with.
“Every client I have right now has come to me at some point this spring and said, ‘Do you think rising interest rates will affect demand?’ When I probe them on why they’re asking, they all say, ‘We’re hoping demand will slow down,’ which tells me they all can handle the higher interest rates,” she says.
Competition for homes in Austin has been so fierce that Rockwell now tells her clients that if their budget is, say, $700,000, they need to be looking at homes in the high $500,000s or low $600,000s.
Rockwell recently had a client who bid $75,000 — or about 10% — over asking price on a three-bedroom house built in the 1940s near downtown Austin.
It took a full day for the listing agent to even acknowledge the bid, and Rockwell didn’t find out that her clients lost the house until the status on the listing changed to “under contract.”
“To me, that was a reflection of how unimportant our offer was to that listing agent,” she says.
The supply of homes for sale in America is discouragingly low. Inventory is down 63% from where it was before the pandemic.
Recent home buyer Tina Burjaliani was shocked at how tight the market was when she started shopping for a house after moving to the Washington, D.C., area last summer.
Burjaliani, who relocated to the U.S. from Europe for her job with an international organization, had bought homes before, but everything she had learned from those experiences was irrelevant.
After being outbid on three properties, Burjaliani was finally able to secure a three-bedroom home on leafy street in a D.C. suburb by offering about 25% above asking price and skipping the inspection.
“Even though last month the interest rate increased,” she says, “based on my experience the competition was still very big.”
One metric, however, shows competition already easing. A report from the Redfin real estate firm shows that homebuyer competition has fallen as a result of higher mortgage rates and shoppers backing out of the market.
The company said 65% of home offers written by its agents faced competition in March, down from 67% in February. That’s the first month-over-month decline since September.
Buyers are finding that in order to win a home in a bidding war, they must present an offer that makes the seller happy.
“In my initial consultation with buyers I’m very straight and honest,” Rockwell says. “I talk about how you will need to waive almost every contingency you can.”
That often means forgoing an appraisal contingency, and if an appraisal comes in lower than the contract price, the buyer is typically stuck paying the difference.
Buyers may also consider offering free or low rent to sellers who may themselves be shopping for a house and might not be ready to move when their home sells.
When it comes to borrowing costs, analysts say buyers worried about rising 30-year mortgage rates should consider an adjustable-rate mortgage — or ARM — which starts out with lower rates than longer-term loans.
Ultimately, buyers shouldn’t try to time the market with respect to prices and mortgage rates, McLaughlin says.
Those who are willing to wait for more inventory to come onto the market will have a better chance of getting the home they want, he says. And those buyers are likely to stay in their homes longer and reap more benefits of homeownership — even if they have to pay a higher mortgage rate.
“You don’t directly live in your mortgage rate, you live in your house. And that's the line of thinking homebuyers need to understand,” McLaughlin says. “The real benefits of homeownership are accrued after owning a home over a long period of time, and you’re more likely to own a home over a long period of time if you like the house you live in.”
In the coming years, throngs of baby boomers will start selling the homes they’ve lived in for decades. Many will likely move into retirement communities, opening up opportunities for younger households to buy their homes.
Builders will also contribute to supply. Though they’ve been hampered by labor shortages and supply constraints, they’ll eventually catch up, McLaughlin says.
“Most buyers of brand new homes are owners of existing ones,” he says. “So as homebuilders deliver new homes and those buyers move in, typically they’ll sell their own home. That will help free up another house.”
High prices could also lead to more supply. Even if a homeowner took out a mortgage with one of the historically low interest rates of the past several years, the opportunity to cash out can be enticing.
“Everyone’s got a number,” McLaughlin says. “Not everyone’s going to hit it at the same time, but the more prices go up, the more those numbers are hit.”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Yahoo Finance anchors discuss trending tickers as Tesla's three-for-one stock split will go into effect after the closing bell and SoFi stock rises on anticipated student loan news.
Stocks under $5 a share (aka penny stocks) are rarely worth considering as an investment vehicle. Companies that occupy this portion of the equity price spectrum tend to have major fundamental flaws, poor management teams, and/or unfavorable competitive positions within their industry. Speaking to this point, several of the best-performing equities over the prior 12 months were former penny stocks.
A down market is the perfect opportunity to buy into these highly profitable and attractively priced stocks.
Yahoo Finance Live anchors discuss Bed Bath & Beyond stock performance amid reports that the company has secured a loan deal.
Ever since she was a Harvard Law School professor in the 1990s, Elizabeth Warren has proposed a way for people to cancel student debt. Harvard economist Larry Summers just agreed.
When Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett buys or sells stock, everyday investors and Wall Street professionals all pay close attention. The best news for investors is that following Buffett's trading activity, and riding his coattails, if you choose to do so, is pretty easy. A 13F provides an under-the-hood look at what money managers with at least $100 million in assets under management were buying, selling, and holding in the most-recent quarter.
In the article, we will discuss 10 stocks to sell according to Ray Dalio. To skip the detailed analysis of Ray Dalio’s Bridgewater Associates, go directly to 5 Stocks to Sell Now According to Ray Dalio. Raymond Thomas Dalio is an American billionaire investor, hedge fund manager, and philanthropist. He is also the author of […]
In this article, we discuss 10 long-term stocks to buy and hold according to Warren Buffett. If you want to see more stocks in this selection, check out 5 Long-Term Stocks to Buy and Hold According to Warren Buffett. Warren Buffett of Berkshire Hathaway is a legendary value investor who has made billions over the […]
Yahoo Finance's Brian Sozzi breaks down how Intel's deal with Brookfield means for the company's dividend and balance sheet.
(Bloomberg) — President Joe Biden announced a sweeping package of student-debt relief, forgiving $10,000 in debt for borrowers who earn less than $125,000 per year and households who earn less than $250,000 and $20,000 in debt for Pell grant recipients.Most Read from BloombergBiden to Unveil Long-Awaited Student Debt Relief Measures on WednesdayCovid Incubation Gets Shorter With Each New Variant, Study ShowsSix Months of Putin’s War Unravels Russia’s Superpower ImageApple’s New iPhone 14 to Sho
Minerva's (NERV) stock surges after the company files an NDA-seeking FDA approval for its schizophrenia therapy.
Not many hedge managers have ignited as much controversy as Cathie Wood. The founder of Ark Invest has built her brand on running against the crowd. From her early embrace of tech stocks to her outspoken political conservatism, Cathie Wood has always been something of a lightning rod. Whether her investments and stock strategies are panning out or not, one thing has always been consistent. Wood has never deviated from her path, and continues to this day to urge investors to stay the path. Wood h
Notable business headlines include the FTC dropping Mark Zuckerberg from Meta’s antitrust suit, Amazon seller Pharmapacks to close after failing to secure financing to remain operating, and Tesla and Nio suspending EV charging amid China’s power crunch.
Walgreens (WBA) has been one of the stocks most watched by Zacks.com users lately. So, it is worth exploring what lies ahead for the stock.
Last week, Axsome Therapeutics Inc's (NASDAQ: AXSM) major depression candidate received the much-awaited FDA approval. HC Wainwright notes that the approval comes roughly a year after the original Prescription Drug User Fee Act (PDUFA) decision date. Auvelity (dextromethorphan HBr-bupropion HCl, formerly AXS-05) is the first and only rapid-acting oral medicine approved for major depressive disorder with the labeling of statistically significant antidepressant efficacy compared to placebo startin
Wedbush Securities Equity Research Analyst Alicia Reese joins Yahoo Finance Live to discuss AMC’s $APE share fluctuation, movie releases, box office expectations, amenities, bankruptcy, and financial growth.
The board of Bank of America Corporation ( NYSE:BAC ) has announced that it will be paying its dividend of $0.22 on the…
Don't make the same mistake as Zillow when you try to price a home.
In the latest trading session, ChargePoint Holdings, Inc. (CHPT) closed at $14.20, marking a +0.57% move from the previous day.
Today we will run through one way of estimating the intrinsic value of Livent Corporation ( NYSE:LTHM ) by estimating…


Leave a Comment