It’s never been more challenging to find an affordable home to buy in the US.
High prices, a critical shortage of listings and mortgage rates that have more than doubled from the record lows of just a couple years ago are forcing countless Americans to put their next moves and other major life decisions on hold.
Gridlock is gripping the housing market in part because buyers and homeowners took advantage of historically low rates to purchase homes or refinance mortgages and lock in lower borrowing costs. More than nine of every 10 US homeowners with mortgages — or 46.1 million people — have a rate below 6%, according to a June report from Redfin Corp.
Those low rates have been an economic gift for many homeowners, a benefit that few want to give up. But for some owners, the situation has left them feeling stuck. A family stays in a house they’ve outgrown. A single mom is trapped in a costly fixer-upper. An empty-nester’s dream of downsizing in the neighborhood she loves is fading.
These struggles are playing out across the country at a time when property values have skyrocketed, borrowing costs have climbed and the inventory of existing homes is about half of what it was four years ago, before the pandemic buying frenzy.
Builders are rushing to step up production, but that alone can’t close the supply-and-demand gap. Largely absent is the one group that historically has kept the market moving: homeowners who are willing to sell.
“I think people forget that the vast majority of sellers are also trying to buy at the same time,” said Danielle Hale, chief economist at Realtor.com. “When conditions are tough for buyers, it can hold back selling inventory as well.”
Without the normal turnover in the market, would-be buyers and sellers alike are stuck in a holding pattern. Mortgage rates are a primary reason for the gridlock. The market’s logjam is unlikely to significantly ease any time soon as mortgage rates face more upward pressure. The Federal Reserve on Wednesday hiked its benchmark rate to a 22-year high and scrapped its forecast for a recession.
Inventory challenges have also persisted for months. A measure of owners putting their properties up for sale tumbled 26% in June from the same time last year, data from Realtor.com show.
Many of the people staying put are homeowners who refinanced when 30-year borrowing costs hovered around 3%. Moving and buying a new place now, while rates are near 7%, would mean getting a more expensive loan. Even if a sale would net a big profit, letting go won’t make financial sense if what’s available to move into is priced out of reach.
Among US homeowners who say they plan to sell in the next three years, 67% would be willing to wait until mortgage rates drop, according to a recent survey by Credit Karma. Millennials were most likely to say they’d put their moves on hold.
“Millennials, in particular, experienced mass layoffs and saw the housing bubble burst in 2008,” said Aniva Hinduja, general manager of home and mortgage at Credit Karma. “They’re being cautious because they understand the magnitude of making good and bad housing decisions. They’re punting those decisions and are making big sacrifices on their children, their relationships and their personal lives.”
Here are stories of some of the people caught in the housing market’s standstill.
No Space to Grow Into
Daniel Hart and his wife made the move to Redwood City, in the San Francisco Bay Area, in 2019, falling in love with a 1960s house in the hills.
The four-bedroom, 2,000-square-foot (186-square-meter) property — now valued at $2.2 million — was big enough to start. But now that the couple’s two children are nearing school age, the family needs more room.
“They’re growing out of the space a bit,” Hart said. “We also have aging parents who want to come visit.”
While the market in the region is calmer after years of ruthless bidding wars, homes are still notoriously expensive, and higher mortgage rates are cutting into the family’s buying power. It’s also hard for the couple to let go of their current 2.95% loan, said Hart, 44, a senior manager at a major tech company.
“We have strong careers and make a good living,” he said. “But costs in the Bay Area are astronomical.”
Suitable houses — with more space, in a neighborhood with quality schools, and priced reasonably enough that they’d be able to keep a financial cushion — are thousands of miles away in the Sun Belt states. Hart said that the budget for he and his wife, who works as a consultant for a tech company, would make it hard to trade up with two kids in the Bay Area, where one study estimates that it costs more than $35,000 a year to raise a single child.
“The price of the homes we’re looking at here wouldn’t fit our needs,” Hart said.
Stuck with a Costly Fixer-Upper
Eight months into her pregnancy and hundreds of miles away in Georgia, Madelyn Machado was eager to move back near her family in Tampa, Florida — and fast. In July 2020, she snapped up a three-bedroom fixer-upper for $365,000, closing quickly even though the inspection came back with a long list of problems.
With a 2.75% mortgage rate, and monthly payments of $2,700, the career coach thought she snagged a deal for the home, fitted with a pool and French doors throughout to take advantage of the Florida sun.
But after high-earning remote workers made Tampa a pandemic boomtown, her property’s value ballooned — to $620,000 — and her taxes and insurance premiums jumped along with it. Suddenly, the single mom’s monthly housing costs totaled $3,400. That’s not counting the $80,000 bill she racked up replacing 1960s-era appliances and fixing old, leaky pipes. As a renter, she’d been used to landlords taking care of repairs.
“When something goes wrong in your home, you’re on the hook for it,” said Machado, 34. “And something is always breaking.”
Equity in the home will help Machado build a better life for her and her daughter in the long run, she said. But the stress of raising a 3-year-old while keeping up with a constant stream of house projects often makes her want to cut the place loose.
“I’m stuck,” she said. “If I want to sell my house and go back to renting, rent is so expensive that it doesn’t make sense.”
Moving ‘on Teacher Money’
After divorcing, the only way Kathryn Vaughn could afford a home of her own on a teacher’s salary in Covington, Tennessee, was through a federal grant program that allows applicants to put no money down. In 2013, she scored a midcentury modern ranch for about $115,000.
Prices shot up in the area after Ford Motor Co. announced plans for an electric vehicle plant, and Vaughn’s house was recently assessed at more than double her purchase price. A refi dropped her initial 3% mortgage down to 2%, but her insurance costs and taxes jumped, raising her total monthly payments to $1,110. They started at $750 — “like Carrie Bradshaw’s rent in NYC,” she said.
On top of rising costs, Vaughn, 43, said she has watched the state’s political climate take a hard right on LGBTQ issues and other matters that have implications for both her job in the classroom and raising the young son she shares with her new husband. They’ve shopped around in more-liberal places like New Mexico, New York and California.
“We’re trying to move on teacher money,” she said, but with nothing available for less than $400,000, their payments would at least triple.
“I’m an elder millennial who has lived through two financial crises and I’m wary of taking on more debt,” Vaughn said. “We’re waiting for interest rates to go down and for there to be more homes on the market.”
Nowhere to Downsize
Situated on an acre of green fields in a Minneapolis suburb, the multilevel house that Deon LaBathe and her husband bought for $130,000 in 1989 was the perfect place to raise three children.
But with the kids “out of the roost,” it’s too much, said LaBathe, 64, whose husband died in 2017. She wants to scale down to a single-level home — smaller than the 1,700 square feet she has now yet spacious enough to host children and grandchildren on holidays. Ideally, it would be in the same neighborhood, where the public school administrator could remain close to friends, family and the doctor she’s known for years.
Her current house is paid off, and has more than tripled in value since she’s lived there — potentially giving her a tidy sum to put toward a new purchase. But with other empty-nesters out looking for the same thing, pickings are slim. And just a year or two from retirement, she’s reluctant to take on a mortgage.
“That was perhaps a pipe dream,” she said. “What I have found is probably more expensive, more of an investment than I want.”
LaBathe now is coming to terms with a different vision for her retirement. She knows that if she wants to move, she’ll need to expand her search outside her community.
“When you have a home that’s filled with memories of raising your family, you want to be able to carry those memories into your next home,” she said. “I don’t know if that’s even realistic.”
This article was provided by Bloomberg News.