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Home prices remain near record levels. Mortgage rates have eased but aren’t far off 23-year highs. Fully 85 percent of respondents to Fannie Mae’s most recent survey of consumer sentiment believe it’s a bad time to buy a home.
Even so, Emily and Michael Druchniak recently bought a newly built house in the Pittsburgh suburbs. Then there’s Andrew and Emily Kissel, who were well aware of the disadvantages facing buyers but decided to grab a fixer-upper near Seattle anyway.
Both families know that they chose an inopportune moment to buy. At the same time, they were ready to make a move.
Their experiences sum up the contradiction of the post-pandemic housing market: Everyone knows it’s a “bad” time to buy, but millions of Americans are closing on homes anyway.
‘Life goes on’
During the pandemic, mortgage rates plunged below 3 percent, and Americans eagerly took advantage. In 2021, more than 6 million existing homes changed hands.
Rates have soared since then, and home sales have slowed, falling to 5 million in 2022. This year, total home sales are likely to be close to 4 million. In October, the number of sales nationally declined to an annual pace of 3.79 million homes, the lowest level since the Great Recession year of 2010.
One big drag on sales is the so-called lock-in effect: Homeowners who secured 3 percent mortgage rates don’t want to give up their cheap loans, hampering the supply of home listings.
Because the housing market remains so tough for buyers, those who bite the bullet and buy usually have a compelling reason — marriage, birth of a baby, job transfer, divorce, death of a loved one.
People will begin to say, ‘Life goes on. I don’t want to give up my 3 percent mortgage rate, but I need a bigger house.’— Lawrence Yun, Chief Economist, National Association of Realtors
As mortgage rates retreat from the 8 percent level they touched in October, some say Americans even outside of those circumstances will accept the new reality of higher borrowing costs.
“People will begin to say, ‘Life goes on. I don’t want to give up my 3 percent mortgage rate, but I need a bigger house,’” says Lawrence Yun, chief economist at the National Association of Realtors.
That’s exactly what motivated the Druchniaks and the Kissels to wade in.
‘Toys were just driving us out’
The Druchniaks knew they were shopping for a home at a moment of soaring mortgage rates, still-high home prices and a generally moribund market for home sales. While the couple realizes it wasn’t an ideal time to buy, they also say personal reasons can trump macroeconomic trends.
“Honestly, toys were just driving us out of our house,” says Emily Druchniak, who works as a marketing manager.
With two young children, the family was simply outgrowing the home they owned in Pittsburgh. So they sold that place and in early October closed on a new house in Cranberry Township, north of Pittsburgh. They paid $710,000 for a more spacious home in Charter Homes & Neighborhoods’ Crescent development.
“We joke all the time, too bad we weren’t in the same position three years ago,” says Druchniak.
The Druchniaks did manage to lock in a home loan in mid-June, before mortgage rates surged from the 6.5 percent range to 8 percent. The couple made peace with the reality that they weren’t buying at a time of super-low rates.
“We prioritized doing what felt right for our family,” says Druchniak. “There’s always pros and cons to the current market. There’s never an economically perfect time to buy.”
‘The absolute top of our budget’
The Kissels were able to buy in a difficult market in part because they were recently sellers.
Earlier this year, the couple sold their Dallas home for far more than they paid. As sellers, the Kissels benefited from a bidding war — which also gave them a preview of the challenges they’d face as buyers.
When they decided they wanted to move to Bainbridge Island, a burg near Seattle, the couple found themselves facing the other side of an imbalanced housing market.
“We were watching properties just flying off the market,” says Andrew Kissel, a software engineer.
The Kissels’ agent, Jason Shutt of Windermere Real Estate Bainbridge Island, let them know about a property they might be able to land.
“He said, ‘If you’re at all interested, you’re going to have to move on this house,’” Kissel recalls. “We wound up accepting a home that was at the absolute top of our budget, and we had to do a lot of work on it. For all intents and purposes, it didn’t have a kitchen.”
In September, the Kissels paid $1.45 million for a home in Bainbridge Island, then invested an additional $80,000 on kitchen renovations. They took a mortgage rate that was much higher than the one on their previous home.
“Man, it was hard stomaching a 6.6 percent mortgage rate when we had a 3.25 percent mortgage rate,” says Kissel.
Still, he doesn’t regret the move. The couple wanted to get away from the extreme weather in Texas, and they love their new neighborhood.
That sentiment aligns with Bankrate findings earlier this year revealing most homebuyers don’t feel remorse about their purchase. Of those that do, the regret is more often tied to the cost of home maintenance — not the mortgage, the home’s price or a belief that the home isn’t a good investment.
“It’s got a small-town feel but with a bit of sophistication,” says Kissel of their new neighborhood. “We are happy with it, because for us it was a significant lifestyle upgrade.”
How to be a buyer in a seller’s market
- Be ready to move fast. Many parts of the country continue to face inventory shortages. That means buyers are competing with one another, even in what would seem to be a slower market. If you're shopping in a tight market, be prepared to quickly make an offer.
- Go through full mortgage underwriting before shopping. In more sedate times, a preapproval letter from a lender would satisfy most sellers. Now, sellers looking at multiple competitive offers will pick the surest thing. A preapproval is based on a preliminary check of your credit score, but it's not the final say. Many real estate agents and loan officers suggest going through a fuller underwriting.
- Adjust your expectations. Mortgage rates are unlikely to return to pandemic levels. Home prices are unlikely to fall. Sometimes the house that's available needs work. Shutt, the Kissels' real estate agent, says buyers need to come to terms with those realities. "Sometimes people get in their own way," says Shutt. "They want to have the perfect house."