Homebuyers in the United States lose hope as more expensive loans undermine affordability

First-time home buyers, already beset by bidding wars, now face a potential deathblow: higher mortgage rates.

Costs for 30-year loans hit a more than two-year high of 3.69% last week, rising about 20% just since Christmas. Further hikes are expected as the Federal Reserve, trying to rein in inflation, raises its benchmark rate. It’s a daunting prospect for entry-level buyers when affordability is already at its worst since 2018.

The pandemic housing rally is heating up again as the key spring selling season approaches, threatening to push new buyers beyond what they can afford. Their modest incomes put them at a disadvantage when competing with seniors and downsizing single-family homeowners for the same moderately priced homes. Soaring borrowing costs sap their purchasing power, preventing them from bidding high enough to stand a chance.

“Housing affordability is about to be crushed,” said Mark Zandi, chief economist at Moody’s Analytics, who expects 30-year rates to top 4% this year.

“Many potential first-time home buyers will be locked out of home ownership, at least until house prices come down to earth or mortgage rates come back down,” he said. declared. “Neither seems likely, at least not soon, and certainly not in time for the critical spring home-buying season.

Cassie Homan, a single Philadelphia tenant in her 40s, scours online listings every day, looking for a modest place to live in suburban New Jersey to be closer to her family. She has a month-to-month lease to stay flexible. But in its sub-$200,000 budget, homes go fast unless there’s something serious going on.

She recently inquired about a renovated two-bedroom house built in 1855 with an asking price of $140,000. But he was gone before she could see him, attracting three cash offers in two days. She considered another house only to find that the seller was passing off the attic as a bedroom. A third property. listed without any photos, was off limits to viewing as a tenant lived there.

Homan said she hopes the rate hike will lead to lower prices, opening up more inventory. Other than that, “I’m screwed – I don’t stand a chance in hell,” she said. “I’m going to have to rent for the rest of my life.”

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