House hunting in the first quarter of 2022 was a full-time job for buyers trying to compete in a red-hot market. Despite rising interest rates and record-high home prices, buyers continued to strive for the American dream of homeownership.
Lack of affordable homes and new construction were the top obstacles for potential buyers. Tensions were high as homes saw multiple offers. Some buyers went to extreme lengths to stand out from the competition: offering all-cash, going over-asking, and/or forgoing inspections. It wasn’t rare to see an attractively priced home go Under Contract within days of going on the market by a buyer who didn’t even enter the home.
Pending home sales dropped in March for the fifth straight month in a row, implying that the frenzy could let up and be replaced by a calmer market. Many seekers just want the chance to get a reasonable bid on their dream home without having to jump through extraordinary hoops. While rising interest rates should lessen the number of buyers in the market, higher rates also make home buying more expensive.
Some buyers are already stepping back and reevaluating. At over 5%, mortgage rates are now the highest they have been since 2010. Lawrence Yun, chief economist for the National Association of Realtors, predicts that interest rates, along with other factors affecting buyer demand, will cause a slowdown. NAR says purchasing an identical home is 55% more expensive than a year ago. With inflation up 8.5% and wages having only increased 6%, affordability will be a major factor throughout the summer months.
Sellers need to be aware that what worked a few months ago might not work as well going forward. Sustainability is playing a growing role in consumers’ purchase decisions. Homebuyers are interested in eco-friendly factors like solar panels and energy efficient technology.
For buyers, there are still some ways to potentially get a lower mortgage rate: by shopping around for lenders, improving their credit score, and considering a shorter-term mortgage or an adjustable mortgage.