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Multiple bids on Day One might be a thing of the past, but high mortgage rates, limited inventory and eroding affordability are still forcing buyers to make most of the compromises.
“They are looking for smaller homes compared to what they were in the market for last year,” says Heather Mahmood-Corley Mahmood-Corley, a Redfin real estate agent in Phoenix, Arizona. “They’re having to go farther out from the town-center so they can afford more of what they want.”
Items on the “must-have list” have also fallen by the wayside.
No more pools. Forget the extra bedroom.
HOME PRICES:Millionaires row no more: Number of houses that cost seven figures nationwide is dropping
MORTGAGE RATES:Homebuyers again retreat to the sidelines as higher rates crimp affordability
For others, it’s cramped their lifestyle.
“I have had clients tell me they will not be eating out as much,” she says. “The new car purchase is on hold.”
So far, higher rates have not caused home prices to fall, at least not by much. While prices are down from their summer 2022 peak levels across much of the country, the National Association of Realtors reported that the January median home price nationally was up 1.3%, compared to a year ago. In some local markets, prices are still rising at near double-digit rates.
Mortgage rates are still more than double what they were early last year. That is keeping many home sellers from trading up because of low locked-in mortgage rates.
The lack of inventory in some markets has meant prices are still holding strong and even rising in some markets.
In Westchester County, New York, for example, where inventory is down 19% from last February, the median home price is up 2.4% in January compared to the same time last year.
In Scarsdale, where entry level homes can range between $1 – $1.4 million, buyers have become less picky, says Kamala Vittal, a real estate agent with Julia B Fee/Sotheby’s.
Vittal, who has managed extensive remodeling projects including teardowns, says buyers are increasingly willing to take on remodeling projects.
“At $1.4 million last year, they would’ve expected it to have upgraded bathrooms. But now they’re like, ‘you know what? It’s fine. Even if it’s blue and green bathroom tiles, I will live with it and do it up over time’,” she says. “I am asked for renovation advice often.”
The average mortgage rate is nearly three percentage points higher than it was last year at this time, and the monthly payment for a typical homebuyer has risen by nearly $700, a more than 40% increase, says Bright MLS Chief Economist Lisa Sturtevant.
At today’s rates, home prices would have to fall by 30% for homebuyers who are purchasing the median-priced home to have the same monthly payment they would have had a year ago, she said.
The median existing-home sales price in January increased 1.3% from one year ago to $359,000, according to the National Association of Realtors.
While prices are down from their summer peaks and price growth has declined significantly, the median home price nationally is slightly higher than it was at the beginning of 2022.
Turnkey homes, which come at a premium, are off average buyers’ lists, says Mahmood-Corley.
“To save on the cost of the property, buyers know they’re gonna look at a home that needs some work,” she says. “Where they’re gonna have to put in some sweat equity to get into that home they can’t get into otherwise.”
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
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