Despite rising mortgage rates, more buyers are entering the real estate market, and it is putting steady pressure on home prices. For future homebuyers, this could mean even more financial hurdles ahead.
Between January and February of this year, existing home sales rose by 4.2 percent to a seasonally adjusted annual rate of 4.26 million units, according to the National Association of Realtors. At the same time, home prices are steadily climbing. The median price for an existing home hit $398,400 in February, marking a 3.8 percent increase compared to the previous year. According to Lawrence Yun, Chief Economist for NAR, buyers are cautiously stepping back into the market. Mortgage rates have not moved much, he said, but a modest increase in inventory and more choices are helping to release some of the pent-up housing demand.
The trends suggest that the financial pressure facing homebuyers is not going away anytime soon — and might even intensify.
So why are housing prices continuing to climb, even as rates stay high? A strong job market, low inventory, and persistent demand are combining to keep prices moving upward. Although mortgage rates now hover between 6 and 7 percent, buyers are motivated by concerns that prices and competition could escalate even further. They are acting now rather than risk being priced out later.
The February jobs report from the U.S. Bureau of Labor Statistics paints a resilient economic picture, showing a 151,000 job increase and a low unemployment rate of 4.1 percent, a figure that many economists consider healthy. At the same time, the housing market remains tight. Inventory levels rose slightly in February to 1.24 million unsold homes, but at the current pace of sales, that inventory represents only about a 3.5-month supply. Traditionally, a six-month supply signals a balanced market. The shortage keeps upward pressure on prices, forcing many buyers to either stretch their budgets or shift their expectations toward smaller or less updated properties.
Yun described the market conditions as still relatively tight, a sentiment echoed by buyers across the country trying to navigate slim pickings and stiff competition.
Interestingly, first-time homebuyers are making a bigger mark in today's market. They accounted for 31 percent of all sales in February, up from 26 percent the year before. Meanwhile, investors have pulled back, making up just 16 percent of sales compared to 21 percent last year. This shift suggests that more primary homebuyers — not investors — are driving the market, which could be part of what is keeping prices firm despite the weight of higher borrowing costs.
For anyone considering buying a home, these trends mean adjustments might be necessary. Buyers may need to broaden their searches to include different neighborhoods, more modest homes, or even different regions where competition is less intense. Some buyers are turning to alternative loan products like adjustable-rate mortgages or interest-only loans to manage monthly payments. While these options can help ease costs in the short term, they come with risks that must be carefully understood.
Another strategy buyers are exploring is to purchase now and refinance later if interest rates drop. Refinancing could lower monthly payments or shorten the loan term, but it is important to factor in refinancing costs to ensure the potential savings make sense.
Timing might also play a critical role. Buyers who can wait for quieter seasons like fall or winter could find themselves with a better chance to negotiate on price, thanks to lower competition.
For current homeowners, the rising market offers an upside. As Yun points out, every one percent gain in home prices translates into roughly a $350 billion increase in housing equity nationwide. Sellers in this environment may find themselves with extra cash in their pockets, providing a financial boost that can be used for a new purchase, home improvements, or investment opportunities.
Whether you are a buyer trying to break into the market or a homeowner weighing your next move, the reality is clear. Today's housing market demands flexibility, smart financial planning, and a willingness to think creatively about how — and when — to make your next big move.
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