Homebuyers are feeling increasingly locked out of the market as prices in major real estate markets soar and mortgage interest rates continue to hit new highs. With prices for homes in major metropolitan areas now beyond the reach of many, open the door to a new way of obtaining affordable and attractive housing is challenging.
The cost of the average home has skyrocketed in many big cities, with San Francisco, New York, and Los Angeles all seeing double-digit increases over the last decade; The median home price in San Francisco has increased by almost 50%. At the same time, mortgage interest rates for the popular 30-year fixed-rate plan hit 4.9 percent in May 2020, the highest in almost 7 years; This rate continues to rise as the Federal Reserve keeps adjusting its benchmark rate.
With the combination of rising prices and higher mortgage rates, those looking to become homeowners are feeling disheartened about their prospects. With increasing competition, many are being outbid or priced out of their dream home. Even those who are able to purchase a home must now pay much more than they originally planned or look at a shorter loan term of 20-25 years.
Both first-time buyers and those wishing to downsize may feel particularly locked out, as the benefits of lower mortgage rates they might have hoped to benefit from have been offset by rising prices. In addition, even if an individual can afford a deposit or qualify for a loan, they may be stymied by stringent home loan requirements such as credit scores.
For those who are serious about buying property, it may be advisable to obtain pre-approval for a mortgage before searching for a home, and to have substantial funds saved in advance to ensure competitive bids. In addition, the use of creative strategies such as relocation programs, home sharing, or short leases may be beneficial in a competitive market.
By being well-informed, working with experienced real estate agents, and leveraging available options, homebuyers might be able to remain competitive in today’s high-priced real estate market.