LOS ANGELES—Shortly after moving to South Florida for a new job with the U.S. Army, Shannon Kaufman and his wife Wendy engaged to a whole other mission: buying a home.
For months, they pored over listings, strategizing late nights on which homes to target and how much they could afford, even if it meant using up some of their retirement savings.
After visiting 200 listings and bidding on 15 homes that ultimately didn’t work out, the Kaufmans finally found one that fit at least some of their needs. However, they will rent it.
“We found a place smaller than we wanted, but it would work until something was built or until the market calmed down,” said Shannon Kaufman, 47.
The housing market in America is increasingly growing, and prices are out of reach for many buyers, especially beginners. This spring, traditionally the busiest season for home sales, is more likely to cause frustration and disappointment for aspiring homebuyers than homeowners.
The number of homes for sale nationwide remains near its lowest levels, fueling fierce competition among buyers who are competing for fewer homes. From Los Angeles to Raleigh, North Carolina, when a home hits the market, it usually sells out within days.
Bid wars are common, often pushing the sale price much higher than what the owner was asking for. Potential buyers who plan to finance their purchases with a home loan often lose out to investors and others who can buy a home with cash. A quarter of homes sold in February were purchased for cash, up from 22% a year ago, according to the National Association of Realtors. Real estate investors accounted for 19% of transactions in February, up from 17% a year ago.
Nicole Kahn, the project manager, and her husband, Ed, moved to Mesa, Arizona, from Phoenix two years ago to shorten their commute to the business. Home prices in the Phoenix area have jumped 20% from a year ago to $500,000, according to Realtor.com.
“The prices keep going up and up,” Khan said.
The couple lost more than a dozen homes they bid on. Some of the homes ended up for sale at a lower cash price than what the couple had offered.
“We don’t have $500,000 in cash,” said Khan, 42. “We couldn’t compete with that.”
Few homes on the market and soaring prices have been the hallmark of the housing market for the past 10 years or so. Now, rising mortgage rates are further complicating the home-buying equation. Higher rates can limit the pool of buyers and cool home price growth – good news for buyers. But higher rates also weaken their purchasing power.
The average 30-year home loan interest rate has increased to about 4.7%. A year ago, average rates were hovering above 3%, according to mortgage buyer Freddie Mac. The increase comes on the heels of a sharp rise in 10-year Treasury yields, reflecting expectations of higher interest rates in general as the Federal Reserve moves to raise short-term interest rates in order to combat rising inflation.
Potential buyers who applied for a home loan in February faced a median monthly mortgage payment of $1,653, including principal and interest, an 8.3% increase from a year ago, according to the Mortgage Bankers Association.
“It’s hard to believe, but I think it will be more difficult this year, in some ways, than it has been in previous years,” said Danielle Hill, chief economist at Realtor.com. So far, at least, we’ve seen the number of homes for sale continue to fall and prices continue to rise. Together, these two factors suggest that a competitive market will keep buyers on their toes.”
Experts say buyers should set their sights on well-listed homes for what they can afford.
“You should be looking for 15%-20% below the limit; that gives them room for assessment gaps, and gives them room to negotiate,” said Tracy Hutton, a broker at Century 21 in Indianapolis.
Being well prepared is sometimes not enough when a homeowner prefers to accept an all-cash offer, rather than sell to a buyer with financing.
South Florida’s Wendy Kaufman couldn’t even enter an open house for a real estate market after she revealed that the couple had a mortgage backed by the Veterans Administration.
“When they saw I had pre-approval from the VA, they said, ‘Sorry, we don’t want to work with you,'” she said.
Sometimes buyers don’t get a chance to make an offer before they’ve snapped up a home, and can’t be seen.
So-called “blind deals” have become popular as a way to get around other buyers, said Rafael Corrales, a Redfin agent, in the Miami area.
One reason is the very low level of homes for sale, which was down 55% in the Greater Miami area in February from a year ago, according to Realtor.com.
While every market is unique, there is one hurdle common across the United States: affordability. The median home price in the United States jumped 15% in February from a year earlier to $357,300, according to the National Association of Realtors.
According to Realtor.com, the San Jose, California metro area had 40% fewer homes for sale in February than a year ago. Buyers there have to navigate some of the most expensive home prices in the country. The median home listing price rose 13.3% to about $1.36 million in February from a year earlier.
Market trends are more welcoming to buyers in the Midwest, including the Indianapolis metropolitan area, where the number of homes for sale is down about 23% from a year ago. The median home price there was $287,000 in February, up 8.5 percent from the previous year.
In Raleigh, home listings fell 55% in February compared to the previous year. The competition for fewer homes helped push the median home price to $430,000, an increase of 9% from February 2021.
These trends have led to a more competitive market for first-time buyers such as Lisa Percy and her husband, Alex Berardo. First-time buyers made up 29% of all homes sold nationwide last month. This share has averaged 31% annually over the past 10 years.
In December, the couple began searching for homes priced at $350,000 or less. They offered $5,000 asking price on two properties, but lost out to competitors.
“That was all we could handle,” said Lisa Percy, 32-year-old project manager. “It’s really a defeat, it’s really disappointing.”
In the end, the couple bought a country house in a new building community, although they see it as the starting point for a more spacious home with a large yard.
“It’s big enough that we can still start our own family and then move in when the market crashes hoping to go down in a couple of years,” she said.