CLEVELAND — While inflation appears to be cooling down, the housing market remains hot. Rising mortgage rates and low inventory are making some homes and neighborhoods out of reach for some would-be homebuyers.
“I can’t afford a nice house that I wanted that I could have a year and a half ago,” Chris Sambor said.
The 25-year-old has been frustrated by his dwindling options as he looks to purchase his first home. He started his search during one of the hottest periods for the housing market. Mortgage rates were hovering between 3-4%, and homes available in his price range were gone before he could even submit an offer.
“I’ve seen sellers asking for cash, or the market’s so hot that they want final and best offer the next day,” he said.
In the following months, inflation and mortgage rates skyrocketed. Consumers saw the price of gas and food climb. The average 30-year fixed mortgage rate jumped by nearly 400 basis points in ten months to a high of 7.08% in late October.
At 3%, the inflation rate is now the lowest it’s been since March 2021. But mortgage rates remain high. Even after a slight decrease this week, the 30-year national average is 6.78%. It’s a significant jump from one year ago when the rates were around 5.5%. For $300,000, the higher rate could mean a $200 difference per month.
Sambor said he estimates he’s lost $50,000 in buying power. The higher rates have also limited the homes and neighborhoods he can now afford.
“I’d say I lost probably about $15,000 over the last 90 days when I had to get re-preapproved,” he said.
The high mortgage rates are not only affecting buyers. More would-be sellers are deciding not to put their homes on the market and lose the low-interest rates for their current mortgage.
“You have lots of sellers that are sitting there in those 2s and 3s or even 4s. And now they see the rates are in the 6s to 7s now, and they’re like, ‘Do I want to sell?’” said Kelly Worthington, a branch manager and senior loan officer for Liberty Home Mortgage.
She explained the nearly 7% national average 30-year rate likely feels more drastic when compared to historic lows in recent years. Individual rates will vary, and buyers can achieve lower rates by making a larger down payment and improving their credit.
“Credit score, to this day, is still the number one contributing factor on what your interest rate is going to be,” Worthington said. “It is also a contributing factor of what you can afford because different loan amounts have different credit scores that they’re allowed to have.”
She recommended paying down high debts, paying bills on time and using credit cards strategically to improve credit scores.
For buyers considering waiting until rates go back down, she said it’s ultimately a personal choice. Rates could fluctuate in the coming months. And Worthington said refinancing or re-selling are options for buyers if rates fall.
“The bigger thing is for buyers just to be prepared to be a little bit more patient, to know it might take four offers or 10 offers or six offers instead of the first offer being accepted,” she said.
Sambor said he plans to continue searching, though he’s adjusting his expectations to find a home he can have long-term.
“I want to find a home that I can stay in. Yeah, I might need to do a little work, but [I’ll] have a home I spend 2-3 years making my own, and that’s it. I’m there for a long time,” he said.
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