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Business

What to do about the highest interest rate in 15 years

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Editor’s Note: This is an updated version of a story that originally ran on November 2, 2022.

In its last policymaking meeting of the year, the Federal Reserve on Wednesday raised its benchmark interest rate for the seventh time in a row, to a range of 4.25% to 4.5%. That is the highest it’s been in 15 years.

In a continued bid to tame decades-high inflation, the central bank may keep pushing rates higher next year, too, albeit at a more modest pace.

That, of course, means higher borrowing costs for consumers. But it also means your savings may actually start earning a little money after years of barely-there interest.

“Credit card rates are at a record high and still increasing. Auto loan rates are at an 11-year high. Home equity lines of credit are at a 15-year high. And online savings account and CD yields haven’t been this high since 2008,” said Greg McBride, chief financial analyst at Bankrate.

The good news: There are ways to situate your money so that you can benefit from rising rates and protect yourself from their costs.

If you’ve been stashing cash at big banks that have been paying next to nothing in interest for savings accounts and certificates of deposit, don’t expect that to change much, McBride said.

Thanks to the big players’ paltry rates, the national average savings rate is still just 0.19%, up from 0.06% in January, according to Bankrate’s December 7 weekly survey of large institutions.

But all those Fed rates hikes are starting to have a much more significant impact at online banks and credit unions, McBride said. They’re offering far higher rates — with some topping 3.75% currently — and have been increasing them as benchmark rates go higher.

As for certificates of deposit, there’s been a noticeable increase in return. The average rate on a one-year CD is 1.20% as of November 22, up from 0.14% at the start of the year. But top-yielding one-year CDs now offer as much as 4.5%.

So shop around. If you make a switch to an online bank or credit union, however, be sure to only choose those that are federally insured.

Given today’s high rates of inflation, Series I savings bonds may be attractive because they’re designed to preserve the buying power of your money. They’re currently paying 6.89%.

But that rate will only be in effect for six months and only if you buy an I Bond by the end of April 2023, after which the rate is scheduled to adjust. If inflation falls, the rate on the I Bond will fall, too.

There are some limitations: You can only invest $10,000 a year. You can’t redeem it in the first year. And if you cash out between years two and five, you will forfeit the previous three months of interest.

“In other words, I Bonds are not a replacement for your savings account,” McBride said.

Nevertheless, they preserve the buying power of your $10,000 if you don’t need to touch it for at least five years, and that’s not nothing. They also may be of particular benefit to people planning to retire in the next 5 to 10 years since they will serve as a safe annual investment they can tap if needed in their first few years of retirement.

When the overnight bank lending rate — also known as the fed funds rate — goes up, various lending rates that banks offer their customers tend to follow.

So you can expect to see a hike in your credit card rates within a few statements.

The average credit card rate hit a record high of 19.40% as of December 7, up from 16.3% at the start of the year, according to Bankrate. Some retail store credit cards are now carrying whopping rates of more than 30%.

“[Interest rate hikes] will most acutely impact those consumers who do not pay off their credit card balances in full through higher minimum monthly payments,” said Michele Raneri, vice president of US research and consulting at TransUnion.

Best advice: If you’re carrying balances on your credit cards — which typically have high variable interest rates — consider transferring them to a zero-rate balance transfer card that locks in a zero rate for between 12 and 21 months.

“That insulates you from [future] rate hikes, and it gives you a clear runway to pay off your debt once and for all,” McBride said. “Less debt and more savings will enable you to better weather rising interest rates, and is especially valuable if the economy sours.”

Just be sure to find out what, if any, fees you will have to pay (e.g., a balance transfer fee or annual fee), and what the penalties will be if you make a late payment or miss a payment during the zero-rate period. The best strategy is always to pay off as much of your existing balance as possible — on time every month — before the zero-rate period ends. Otherwise, any remaining balance will be subject to a new interest rate that could be higher than you had before if rates continue to rise.

If you don’t transfer to a zero-rate balance card, another option might be to get a relatively low fixed-rate personal loan. Average personal loan rates range from 10.3% to 12.5% for those with excellent credit scores, according to Bankrate. The best rate you can get would depend on your income, credit score and debt-to-income ratio. Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.

Mortgage rates have been rising over the past year, jumping more than three percentage points.

The 30-year fixed-rate mortgage averaged 6.33% in the week ending December 9, according to Freddie Mac. That is more than double where it stood a year ago.

“After cresting above 7%, mortgage rates have pulled back a bit but not enough to impact buyer affordability. The year-to-date rise in mortgage rates has still stripped would-be homebuyers of one-third of their buying power,” McBride said.

What’s more, mortgage rates may climb further.

So if you’re close to buying a home or refinancing one, lock in the lowest fixed rate available to you as soon as possible.

That said, “don’t jump into a large purchase that isn’t right for you just because interest rates might go up. Rushing into the purchase of a big-ticket item like a house or car that doesn’t fit in your budget is a recipe for trouble, regardless of what interest rates do in the future,” said Texas-based certified financial planner Lacy Rogers.

If you’re already a homeowner with a variable-rate home equity line of credit, and you used part of it to do a home improvement project, McBride recommends asking your lender if it’s possible to fix the rate on your outstanding balance, effectively creating a fixed-rate home equity loan.

If that’s not possible, consider paying off that balance by taking out a HELOC with another lender at a lower promotional rate, McBride suggested.

Given that inflation may have peaked, market returns may be better next year, said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “The outlook for equity and fixed income returns has improved, and a balanced approach [in your portfolio] makes sense.”

That’s not to say markets won’t remain choppy in the near term. But, Ma noted, “A soft landing for the economy looks not only possible but likely.”

Any cash you have sitting on the sidelines might be put into the equity and fixed income markets in regular intervals over the next six to 12 months, he suggested.

Ma remains bullish on value stocks, especially small cap ones, which have outperformed this year. “We expect that outperformance to persist going forward on a multi-year basis,” he said.

Regarding real estate, Ma noted, “the sharply higher interest and mortgage rates are challenging…and that headwind could persist for a few more quarters or even longer.”

Commodities, meanwhile, have come down in price. “But they still are a good hedge given the uncertainty in energy markets,” he said.

Broadly speaking, however, Ma suggests making sure your overall portfolio is diversified across equities. The idea is to hedge your bets, since some of those areas will come out ahead, but not all of them will.

That said, if you’re planning to invest in a specific stock, consider the company’s pricing power and how consistent the demand is likely to be for their product, said certified financial planner Doug Flynn, co-founder of Flynn Zito Capital Management.

To the extent you already own bonds, the prices on your bonds will fall in a rising rate environment. But if you’re in the market to buy bonds you can benefit from that trend, especially if you purchase short-term bonds, meaning one to three years. That’s because their prices have fallen more, relative to long-term bonds, and their yields have risen more. Ordinarily, short- and long-term bonds move in tandem.

“There’s a pretty good opportunity in short-term bonds, which are severely dislocated,” Flynn said.

“For those in higher-income tax brackets, a similar opportunity exists in tax-free municipal bonds.”

Muni prices have dropped significantly and, while they have started to improve, yields have risen overall and many states are in better financial shape than they were pre-pandemic, Flynn noted.

Ma also recommends short-term corporate bonds or short-term Agency or Treasury securities.

Other assets that may do well are so-called floating rate instruments from companies that need to raise cash, Flynn said. The floating rate is tied to a short-term benchmark rate, such as the fed funds rate, so it will go up whenever the Fed hikes rates.

But if you’re not a bond expert, you’d be better off investing in a fund that specializes in making the most of a rising rate environment through floating rate instruments and other bond income strategies. Flynn recommends looking for a strategic income or flexible income mutual fund or ETF, which will hold an array of different types of bonds.

“I don’t see a lot of these choices in 401(k)s,” he said. But you can always ask your 401(k) provider to include the option in your employer’s plan.

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Business

Mortgage rates fall for the second week in a row

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Mortgage rates dropped again this week, after plunging nearly half a percentage point last week.

The 30-year fixed-rate mortgage averaged 6.58% in the week ending November 23, down from 6.61% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.10%.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. But last week, rates tumbled amid reports that indicated inflation may have finally reached its peak.

“This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points,” said Sam Khater, Freddie Mac’s chief economist.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit. But many buyers who put down less money upfront or have less than perfect credit will pay more than the average rate.

The average weekly rates, typically released by Freddie Mac on Thursday, are being released a day early due to the Thanksgiving holiday.

Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

The 10-year Treasury has been hovering in a lower range of 3.7% to 3.85% since a pair of inflation reports indicating prices rose at a slower pace than expected in October were released almost two weeks ago. That has led to a big reset in investors’ expectations about future interest rate hikes, said Danielle Hale, Realtor.com’s chief economist. Prior to that, the 10-year Treasury had risen above 4.2%.

However, the market may be a bit too quick to celebrate the improvement in inflation, she said.

At the Fed’s November meeting, chairman Jerome Powell pointed to the need for ongoing rate hikes to tame inflation.

“This could mean that mortgage rates may climb again, and that risk goes up if next month’s inflation reading comes in on the higher side,” Hale said.

While it’s difficult to time the market in order to get a low mortgage rate, plenty of would-be homebuyers are seeing a window of opportunity.

“Following generally higher mortgage rates throughout the course of 2022, the recent swing in buyers’ favor is welcome and could save the buyer of a median-priced home more than $100 per month relative to what they would have paid when rates were above 7% just two weeks ago,” said Hale.

As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. But refinance activity is still more than 80% below last year’s pace when rates were around 3%, according to the Mortgage Bankers Association weekly report.

However, with week-to-week swings in mortgage rates averaging nearly three times those seen in a typical year and home prices still historically high, many potential shoppers have pulled back, said Hale.

“A long-term housing shortage is keeping home prices high, even as the number of homes on the market for sale has increased, and buyers and sellers may find it more challenging to align expectations on price,” she said.

In a separate report released Wednesday, the US Department of Housing and Urban Development and the US Census Bureau reported that new home sales jumped in October, rising 7.5% from September, but were down 5.8% from a year ago.

While that was higher than predicted and bucked a trend of recently falling sales, it’s still below a year ago. Home building has been historically low for a decade and builders have been pulling back as the housing market shows signs of slowing.

“New home sales beat expectations, but a reversal of the general downward trend is doubtful for now given high mortgage rates and builder pessimism,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Despite a general trend of falling sales, prices of new homes remain at record highs.

The median price for a newly constructed home was $493,000 up 15%, from a year ago – the highest price on record.

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Business

Home sales drop for 9th month

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Home sales in the United States declined for the ninth month in a row in October as surging mortgage rates and high prices pushed buyers out of the market.

Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — were down 28.4% in October from a year ago and down 5.9% from September, according to a National Association of Realtors report released Friday. All regions of the United States saw month-over-month and year-over-year declines.

That continues a slowing trend that began in February and marks the longest streak of declining sales on record, going back to 1999.

Sales in October were at their weakest level since May 2020, when the real estate market was at a standstill during the pandemic lockdowns. Beyond that, sales last month were the weakest they have been since December 2011.

Still, home prices continued to climb last month. The median home price was $379,100 in October, up 6.6% from one year ago, according to the report. But that’s down from the record high of $413,800 in June. The price increase marks more than a decade of year-over-year monthly gains.

“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” said Lawrence Yun, NAR’s chief economist. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”

Many homeowners who recently bought or refinanced into ultra-low mortgage rates are reluctant to sell. That has kept inventory painfully low.

At the end of October there were 1.22 million units for sale, down less than 1% from both last month and last year, according to the report. At the current sales pace, it would take 3.3 months to get through the existing inventory, up from 3.1 months in September and 2.4 months last year. But that’s still historically low: A balanced market is a 4 to 6 month supply.

“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun added.

While nearly a quarter of homes in October sold over the asking price, homes sitting on the market for more than 120 days saw prices reduced by about 16%.

With fewer buyers shopping for homes, the average time a home stays on the market is getting longer.

Properties were typically on the market for 21 days in October, up from 19 days in September. Pre-pandemic, homes typically sat on the market closer to 30 days. Over half the homes sold in October were on the market for less than a month.

While prices are still climbing year over year nationally, the increase is smaller than it has been over the past couple years with annual home price appreciation peaking at 24% in May 2021.

And some markets are even seeing prices drop, especially areas that saw a huge increase in home price appreciation during the pandemic, Yun said.

Half the country can expect to see prices decline year over year in the months ahead, Yun said, most will be by a modest amount, while other areas will see bigger drops. But the other half will likely see a modest increase.

“Affordable areas will hold on, places like Indianapolis, where there is job growth,” he said.

Still, Yun said, nationally, home prices are 40% higher than in October 2019, prior to the pandemic.

“Household incomes have not risen by 40%,” he said.

Those struggling to buy their first home continued to be shut out, making up only 28% of transactions last month.

“First-time buyers are really struggling with high prices, the high bar to get into the market and high mortgage rates.”

Once the hurdle to homeownership improves a bit for buyers — either with falling prices or lower mortgage rates — we could again face a housing shortage, Yun said, because the number of fresh listings coming to market is lower now than a year ago.

Current homeowners aren’t selling and homebuilders are slowing home construction, too.

October housing starts, a measure of new home construction, dropped 4.2% from September, and were down 8.8% from a year ago, according to the US Census Bureau and the US Department of Housing and Urban Development.

“This is why more new home construction is needed, as well as more rehabilitation of disused buildings into residential units,” said Yun, noting that while construction of apartment buildings remains robust, single-family starts are below one year ago and well below historical averages.

“In the meantime, mortgage rates are falling from the peak levels of last month and the gate is opening for more homebuyers to qualify for a mortgage.”

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First-time homebuyers are being shut out of the market like never before

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If you bought your first home during the past year, consider yourself one of the fortunate few.

Skyrocketing home prices and climbing interest rates pushed the share of first-time homebuyers to an all-time low, according to a new report from the National Association of Realtors. And those first-time buyers were the oldest they have ever been, as the growing lack of affordability forced people to wait longer to reach life milestones like buying a home.

First-time buyers made up just 26% of all homebuyers in the year ending June 2022, down from 34% the year before, according to NAR’s 2022 report on homebuyers and sellers. That was the lowest in the survey’s 41-year history. The share of buyers purchasing a first home has sat between 30% and 40% over the past decade and reached as high as 50% in 2009.

The age of a first-time homebuyer also rose, with the typical age reaching 36 years old, up from 33 last year. The typical repeat buyer’s age also climbed, reaching 59 years old, up from 56. Both are all-time highs.

As home prices soared and mortgage rates rose, buyers’ income dropped, the report found.

The median household income for first-time buyers slipped to $71,000 during the year ended in June, down from $86,500 in the previous 12-month period. Meanwhile, repeat buyers had a median income of $96,000, down from $112,500 the previous year.

Buyers typically purchased their homes for 100% of the asking price, the research showed, with 28% paying more than the asking price.

“For first-time homebuyers, the lack of affordability is playing a key role in holding them back from homeownership,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “They don’t have the equity that repeat buyers have for a down payment or to buy in cash. They have to save while paying more for rent, as well as student debt, child care and other expenses, and this year were facing increasing home prices while mortgage rates are also climbing.”

The time period covered by the research, from July 2021 to June 2022, included some of the steepest home price increases, reaching a peak median home price of $413,800 this past June. Inventory, hampered by decades of underbuilding, was at record low levels, which kept the competition to buy a home frenzied and pushed prices higher. By April of this year, mortgage rates began to surge past the 5% mark. But, after the Fed embarked on a series of interest rate hikes in order to tame inflation, they climbed to as high as 7% by late October. On Thursday, mortgage rates dipped slightly to 6.95%.

Together these factors have made for one of the most challenging and least affordable housing markets in decades.

Economists and housing advocates have cautioned that the increasingly unaffordable housing market is locking many potential buyers, especially buyers of color, out of homeownership.

The research showed there were fewer Black and Asian homebuyers during the year studied, while the share of White and Hispanic buyers grew.

During the year ending in June, the overwhelming majority of buyers, 88%, were White, up from 82% the previous year. Of all home buyers, 8% were Hispanic, up from 7%. Meanwhile, 3% were Black and 2% were Asian, both dropping from 6% a year ago.

This is likely to exacerbate the racial homeownership gap, in which 72% of White Americans are homeowners while only 43% of Black Americans own a home, according to NAR.

“We have been talking about the impacts, but this year we are seeing it realized in the data,” said Lautz. “Unless we have substantial homebuilding at affordable prices, we will continue to see first-time homebuyers held back.”

Lautz said that prior NAR research has shown that would-be Black homebuyers have lower incomes, higher debt and less likelihood of family support for a down payment than other groups. The data also showed that Black renters are also more squeezed, with a larger share paying more than 30% of their income to their landlord.

“With the rise of rents and how that is hitting first-time homebuyers, it impacts Black buyers more than it would any other group,” said Lautz.

Because of the affordability crunch, homebuyers seemed less able or interested in buying in the area where they currently live. The median distance between a buyer’s current home and their newly purchased home was typically 15 miles between 2018 and 2021. The typical distance during the year ending in June 2022 was 50 miles.

Lautz said the research showed buyers faced hard decisions to close the deal on a home they could afford.

The typical home purchased was 1,800 square feet, had three bedrooms and two bathrooms, and was built in 1986, the NAR report found. That is a smaller and older home than in previous years.

“For a lot of people something had to give in the equation: their location, the condition of the home or its size,” said Lautz.

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Business

Home prices are finally falling. But how low will they go?

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The US housing market is in the midst of a major shift. After two years of stratospheric price appreciation, home prices have peaked and are on their way back down.

But what homebuyers and homeowners alike want to know is: How much lower will prices go?

The short answer: Prices are likely to drop further, but not by as much as they did during the housing bust. From the 2006 peak to the 2012 trough, national home prices fell by 27%, according to S&P CoreLogic Case-Shiller Indices, which measures US home prices.

“It was different in 2008, 2009 because that drop in prices was because of a push from sellers,” said Jeff Tucker, senior economist at Zillow. “Because of foreclosures and short sales there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”

Plus, that housing crash came at a time when the inventory of homes for sale was four times higher than it is now. Current inventory is still substantially lower than pre-pandemic levels, which has increased competition for homes. And that is keeping prices relatively strong.

“I would be surprised to see prices anywhere drop below where they were in 2019,” said Tucker. “There was some overheating in the housing market in 2021 through this spring that pushed prices higher than what the fundamentals would support. Now they are coming down.”

With mortgage rates more than doubling since the start of this year, the calculations for a homebuyer have changed considerably. The monthly principal and interest mortgage payment on the median priced home is up $930 from a year ago, a 73% increase, according to Black Knight, a mortgage data company.

When you factor in soaring mortgage rates, along with elevated home prices and wages that aren’t increasing as fast, buying a home is less affordable now than it has been in decades, according to Black Knight.

But there may be some relief in sight for buyers.

Economists at Goldman Sachs expect home prices to decline by around 5% to 10% from the peak hit in June.

Wells Fargo has recently forecasted that national median single-family home prices will drop by 5.5% year-over-year by the end of 2023.

Wells Fargo’s economists estimate that the median price for an existing single family home to be $385,000 this year, up 7.8% from last year, but the growth will be a lot less than the 19% year-over-year increase seen in 2021.

The economists anticipate the median home price will fall to $364,000, a decline of 5.5% from this year. They predict prices will rebound and rise again in 2024, with the median price ticking up 3.3% to 376,000 by the end of 2024.

“The primary driver behind the housing market correction thus far has been sharply higher mortgage rates,” the Wells Fargo researchers wrote. “If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly just as cooling inflation pressures boost real income growth. A modest improvement in sales activity should then follow, which will reignite home price appreciation heading into 2024.”

Ultimately, how much prices fall will depend on where you live.

Unlike the run-up in prices during the pandemic that caused home values in markets across the country to surge, the cooling off will be more regional, said Tucker. The drops will be more deeply felt in places where there were larger gains during the pandemic, many of them in the West and Sunbelt, including cities like Austin, Phoenix and Boise, he said.

“Nationally, we might see a 5% decline from the peak,” Tucker said. “But prices will decline by more in the West and there will be a smaller decline in the Southeast.”

In September, month-over-month home prices dropped in several pandemic hotspots, including Phoenix, down 2.3%; Las Vegas, down 1.9% and Austin, down nearly 1%, according to Zillow.

And Boise, Idaho, where prices surged nearly 60% during the pandemic, is already seeing annual declines, with prices falling 3.9% year over year in September, according to Zillow.

“A number of metro areas, especially in the West, will see some year-over-year price declines this spring,” said Tucker. “That will be the worst comparison time because that’s when many markets reached their peak.”

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Business

It’s so hard to get a house right now, people are giving up on buying

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Buying a home of her own became a priority for Kelly Robinson during the pandemic, as she began to feel cramped in her Indianapolis apartment.

“Last fall having to stay home so much, that really made me decide that it is time to buy a house,” she said. Among the top amenities she was looking for: outdoor space and more privacy.

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Further motivated by record low interest rates, Robinson set her sights to buy in the spring when she expected more properties would be available. It would also give her time to get her finances in order.

“But by the time I got pre-approved and started seriously looking at homes, the market got crazy” she said.

Robinson set a budget for $250,000. But in her market – the suburb of Greenwood – homes began selling within days, with as many as 10 competing offers, and sometimes going for $100,000 over the asking price.

“‘Crazy’ to me is not getting an inspection because you want to be number one on the homeowner’s list,” she said. “That is a risk I’m not wiling to take. And having to make an immediate decision the day you see it? That is another thing that makes me really nervous.”

So she decided to put the home search on ice and continue renting.

Courtesy Kelly Robinson

Kelly Robinson wants to buy a home outside of Indianapolis, but said the market is too aggressive now and has decided to wait.

“There are so many aggressive shoppers out there and I’m not willing to compete with that,” she said. “I need to be happy today, but I also want to be happy a year from now. If I overpay or don’t get an inspection, that will cause bigger issues down the road.”

Up against all-cash offers they can’t match and a feeding frenzy on each house they visit, many buyers are dropping out of the market and opting to wait it out and reevaluate their options.

The housing market was on fire this spring, leaving many would-be buyers burned out. Low mortgage rates have been fueling demand, but there’s also been a record-low inventory of available properties. That has pushed home prices to record highs, with some homes attracting multiple all-cash offers, and others selling for $1 million over the list price.

But home sales have fallen for the fourth month in a row, on a monthly basis, partially because there aren’t enough homes to buy, but also because the competition and higher prices are turnoffs to those who can’t afford to compete, according to a recent report from the National Association of Realtors.

“Clearly sales are moving down partly due to inventory shortage, but the affordability is squeezing some of the buyers out of the market,” said Lawrence Yun, NAR’s chief economist. “Homebuyers qualify for a mortgage based on their income, but with prices rising 20% or higher, it is simply pricing them out of the market.”

Only 32% of consumers believe it’s a good time to buy a home, according to Fannie Mae’s Home Purchase Sentiment Index for June. That’s a record low. High home prices were cited as the main reason people were pessimistic toward home buying. That sentiment was particularly strong among renters looking to buy for the first time, said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners,” he said. “It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments who have already established homeownership.”

Still, even in the face of tough buying conditions, many would-be homeowners remain intent on purchasing now, Duncan said, especially with mortgage rates still relatively low and a down payment ready to go.

“I’m encouraging my buyers to stay the course,” said Corey Burr, a senior vice president at TTR Sotheby’s International Realty in Washington, DC. “They need to have a persistent confidence their dream home will become available and they can buy it. Just because it is difficult doesn’t mean it is impossible.”

It’s true, buying a home is not impossible. Plenty of people are doing it. But more people have tried and still aren’t able to buy. And there are limits to how much time and emotional energy buyers are willing to put toward being shut out of the market.

First-time homebuyers Steven and Laura Andranigian planned to move from their home near Monterey, California, to the Coachella Valley in southern California, where they have family and Laura got a job teaching elementary school.

Courtesy Steven Andranigian

Steven and Laura Andranigian were ready to be first-time homebuyers when they moved to California’s Coachella Valley. But after house hunting for months, they have decided to rent instead.

Looking for a home that costs less than $500,000 has them chasing properties as soon as they are listed. Many times, the houses are gone before they can even make an offer. Twice they’ve been laughed at for asking for time to get a pre-offer inspection. They’ve lost out on five bids so far.

“You get told, ‘Here are the 10 things you need to do to buy a house’” he said. “We did 20 of those. And it is still like, ‘Well, you’re not able to participate.’ Because there are people who are flush with cash who also want to buy here now.”

They had been saving to buy a home for years and have been looking for months. But now they realize that their purchase options are to buy something that needs work in an area they don’t want to live, to wait for a new construction home and pay a premium for it, or to buy something over their budget.

“The only way to buy [a home that costs] over $500,000 is for my in-laws to gift or loan us the difference,” said Steve Andranigian. “But that seems excessive for people who have stable, good jobs to get $200,000 from family. Even when you’ve done everything right you still need more?”

The Andranigians have decided to abandon their home search.

“We decided to rent while we wait for the housing market to settle or resolve itself,” Steven said.

But getting a rental isn’t going to be easy either. The most galling turn of events, he said, would be to have to rent a home they had put an offer on before.

They’ve already seen some homes that they bid on come back to market as rental homes right after closing. Even though a property like that would be the kind of home they would love to live in, it would pour salt in the wound to have to rent it after trying to buy it, he said.

“To have to talk to the landlord, and hear they were sitting on a ton of cash and they wanted to turn it into a rental while we are just trying to buy our first home would be really hard,” he said. “But to find out the landlord is a hedge fund and it is owned by some faceless company? That may be worse. We don’t want to rent the place. We want to buy.”

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