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'If you are looking for a house right now, bless you': Buyers struggle as interest rates make real estate even pricier

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Key Points
  • The average 30-year, fixed rate mortgage jumped three-tenths of a point in the last week to 4.8%, according to new data. That's the highest it's been in over three years.
  • The average home price in January 2022 was 19% higher than it was 12 months before, according to the S&P CoreLogic Case-Shiller Home Price Index.
  • Despite those headwinds, some real estate agents expect conditions to get even more competitive and expensive in the next year, and so they are urging clients to buy now.

If you've been holding off buying a new home in the hopes that the market is going to cool down, you may be out of luck. Just as the spring buying season is getting into full swing, new data from the Mortgage Banker's Association shows that the ultracompetitive homebuying market is only getting more challenging.

The average 30-year, fixed rate mortgage jumped three-tenths of a point in the last week to 4.8%, according to MBA data. That's the highest it's been in more than three years.

"Those shopping for homes are struggling with not only higher and more volatile mortgage rates, but also an ongoing shortage of homes on the market," Mike Fratantoni, chief economist and senior vice president at MBA, said in a statement that accompanied the data.

Others put it more bluntly. "If you are looking for a house right now, bless you," says Kim Holderness in her most recent video parodying the real estate market. Her family's vlogs have 262,000 subscribers on YouTube.

A starter home in the current market is probably akin to a shed next to a Dumpster alongside a highway, she jokes, and even that will go "for $150,000 over asking."

"We think [the housing market] will correct. Right?" Holderness says at the end. "It'll go back down. Right?" Her voice trails off in uncertainty.

Higher mortgage rates add yet more costs

Rapidly rising interest rates, which adds thousands of dollars to the price of a home over the lifetime of the loan, are just one more cost in the already very expensive market.

Home prices in the U.S. have been climbing steadily for well over a year: The average home price nationally has seen double-digit, year-over-year growth for the last 14 months, according to the S&P CoreLogic Case-Shiller Home Price Index.

The average home price in January 2022 was 19% higher than it was in January 2021, which itself was 11% higher than it had been at the same time in 2020, according to the index.

In some markets, the price jumps have been much higher. Phoenix and Tampa, for example, saw annual price jumps of nearly 33% and 31%, respectively.

In big, perennially hot markets like New York City and Los Angeles, real estate agents blame the price spikes on an ongoing lack of supply. Michael J. Franco, a real estate broker in New York, has seen multiple boom and bust cycles selling real estate in and around the city, and he doesn't see this inventory crunch ending any time soon.

"I had a buyer tell me, 'Maybe we should wait till there's more inventory?'" Franco recalls. "And I said, 'Well, when's that going to be? Because right now, it's not happening.'"

'This is the time' to buy, so be ready to act fast

Despite the headwinds that buyers face, agents like Franco still think that those who can afford a house should act sooner than later. "It could be a situation that, in two years, the prices are going to be even higher," he says. "So I'm telling people this is the time to do it."

Once buyers decide to jump into the market, Franco says they should keep a sense of urgency as they're looking. "I'm telling people to be ready and to act fast," Franco says. That readiness includes making sure all your lending documents are ready to make a quick offer.

VIDEO6:2806:28
3 tips for buying your first home in a crowded market

Video by Richard Washington

Here are three other common wisdoms real estate agents are giving their clients in this competitive market.

  • Get prequalified by your lender. There's a big difference between being preapproved and being prequalified for a mortgage, experts say. Prequalification is a much more robust look into your personal finances so the lender can make sure you're good for the money. It means that sellers will have to do less legwork if your offer is accepted.
  • Have your lender call the listing agent. The most competitive buyers will not only get prequalified but will also have their lenders call the listing agent, experts say. "I always like the lender to call me and tell me about the client when they're making an offer," Jeffrey Knipe, a real estate agent and founder of Knipe Realty in Portland, Oregon, recently told Grow. "The lender can really help make your offer that much better."
  • Write the seller a letter. Send the seller a personal note, experts say. It won't make the difference if someone has outbid you on price, but in particularly tight negotiations, an appeal to the seller's emotions can sometimes do the trick.

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