With mortgage rates above the 5% mark and prices still at all-time highs, homebuyers face new challenges this summer.
Some frustrated buyers are simply dropping out of the market, but that could actually benefit those who stay in, according to real estate agents.
Couple struggles with rising mortgage rates
Sara and Clay Conner are young parents trying to find a home during one of the most challenging buying markets in decades.
"We'd put in an offer, and we got outbid. That was really disheartening," Sara Conner said.
"It was definitely a frustrating experience as a buyer," Clay Conner added.
That was even before this year's big jump in mortgage rates, which suddenly lowered the amount they could comfortably afford to spend.
"It was a little bit alarming when rates went from 3 to 4%," she said.
Then, rates surged from 4 to 5%, and briefly to 6%, adding hundreds of dollars to their monthly payment.
An analysis by CNBC said a 30-year mortgage on a $450,000 home would have cost $1,575 a month last year when rates were at 3.25%. That same home will now cost $2,078 a month.
For the Conners, it created even more urgency in their house hunt.
"We knew interest rates were going up, so we knew we wanted to find something quickly," Sara Conner said.
Agents said when mortgage rates hit 5% this year, they immediately started to see some buyers drop out of the market, primarily people who had based their purchase on 3 and 4% rates. Real estate agent Susan Huff of Huff Realty said the silver lining is that for those who remained in the market, there are now many more opportunities to find a home.
"It is giving people a little bit more of a chance to get out there and get more of a selection," she said.
Huff said many homes are not getting multiple offers on the first day they hit the market anymore.
"You have a little more time," she said. "It is not as hectic."
Options for buyers right now
So what can homebuyers do if they had hoped to find a home? Nathan Grant of MoneyTips.com said it's important to remember buyers can't control mortgage rates.
"I can stress about this all I want," he said, "but what can I actually do?"
He said, however, there are factors buyers can control, such as:
- Saving for a larger down payment
- Working to raise credit scores to qualify for a lower rate
- Comparing lenders online for the lowest rate
- Considering an adjustable, or ARM, mortgage, which carries a lower rate
Nathan said buying now and refinancing later on is another option.
"Let's say we got the home, and we were hoping to refinance a year later," he said. "Maybe in that same year, your credit has improved and your debt has been paid down, so your personal situation has improved, and you now qualify for a lower rate."
Some more good news for buyers: Mortgage rates are now dropping slightly in July as the economy slows, so the Conners were finally able to lock in a decent rate.
"We may have had to buy a smaller home due to the rising interest rates," Clay Conner said.
In the end, they could have an offer accepted on a home they wanted and still get a decent mortgage rate.
The Conners' message to other buyers: Don't get discouraged because buyers may now find less competition for the home they want. That way, you don't waste your money.
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