By Jonnelle Marte

(Reuters] Brianna Lombardozzi has finally gotten her finances in order to be able buy a house. However, she’s not feeling optimistic about her prospects.

Lombardozzi (37) used federal stimulus funds and other savings she had built up in the pandemic for the major part of her credit card debt. This move helped to increase her credit score by nearly 100 points.

There is intense competition for houses in the price range $175,000-225,000 in Central South Carolina. She has already had four offers rejected in the last month. She isn’t sure if she can find an affordable property with rising mortgage rates, as her lease expires at May 31st.

Lombardozzi is a housing worker at the local university.

The housing affordability of homes is falling as home prices rise. First-time buyers are suffering from rising rents and have not been able to benefit from the rising value of their home.

The National Association of Realtors reported that 27% of home sales for January were by first-time purchasers. These numbers are close to 2014. Buyers on tight budgets will have a harder time finding affordable homes due to mortgage rates at 4.4%. This is the third highest rate in approximately three years.

Graphic: First-time buyers squeezed out : https://graphics.reuters.com/USA-ECONOMY/HOUSING-AFFORDABILITY/lbpgnzelyvq/chart.png

AFFORDABILITY STAINED

As buyers took advantage record-low interest rates on mortgages and remote workers needed more space, the demand for housing rose. Lombardozzi was one of those people who saved money that they could have used to travel and eat out, allowing them more cash for investing in their home.

In parallel, however, there was a plunge in the number of homes available for sale as many owners decided to remain put due to uncertainty and disruptions in supply chains and labor shortages.

While there are some positive trends, inventory of homes available for purchase at January’s end was low at record levels – enough to last only 1.6 months according to NAR data. It is driving buyers to fight for limited listings which in turn drives prices higher.

The Atlanta Federal Reserve reported that housing affordability fell to 33% at the end 2021. This is a drop of nearly 30% from November 2008. According to Atlanta Federal Reserve data, households making the median income needed to spend almost 33% to pay for a median-price home. A household that spends less than 30% on housing is considered affordable.

The rising interest rates may make affordability even more challenging. After rising mortgage rates, some people may lose their preapproval for a mortgage.

Analysts state that first-time buyers face difficulties competing with all-cash offers. This includes institutional investors, such as private equity funds. They are also taking up more of the purchases, and sellers consider them less risky. According to NAR, cash purchases made up 27% of January’s sales, compared with 19% one year ago.

Some buyers have been outbidden by those with sufficient cash, according to Erica Barraza (a Seattle real estate broker). This is based on how much the property’s appraised worth.

Graphic: Home ownership becoming less affordable: https://graphics.reuters.com/USA-ECONOMY/HOUSING-AFFORDABILITY/klpykbydypg/chart.png

BRACING FOR DISAPOINTMENT

Potential homebuyers often have to adjust their expectations and increase their spending to be eligible for a successful bid. Buyers must also be quick, viewing houses as soon as they are put on the market, and then making an offer within minutes or a few hours.

These conditions have a negative impact on morale. A Fannie Mae survey found that only 29% thought it was a good time for them to purchase a house. This is a low number in a series of surveys launched in 2010. Beeston is a mortgage lender and said that pep talks are what she spends half of her time on now.

Jamar and Jason Haggans just started their search for a home, but are already setting lower expectations.

They find only 10-15 new homes each day when they search for a 3 bedroom, 2 bath house in Kansas City. Most of these houses sell in less than a day, often at a much higher price than the asking.

The couple reviewed all the properties and determined that they were of high quality. They also increased their budget by $75,000 to avoid overpaying.

Harrison, 36, said that “My greatest fear is that we will have to spend more than we actually are worth” if they want to buy a house.

Harrison and Haggans will not waive home appraisals or inspections. This is because they fear this could make their homes less attractive to potential buyers. They expect more homeowners to list their properties in spring.

Buyers who delay their home search can also be subject to rising rents.

Lombardozzi estimates she still has about one month to find a place before she can start searching for rental properties.

She recently purchased the house that she rented for six years. Comparable rentals go for 20-40% more than she pays now, she said.

Her search for homes began in January. Mortgage Bankers Association data indicates that home-loan prices have increased by approximately three quarters of an percentage point during this time frame. This means she is unable to borrow as much if she wishes to maintain a monthly mortgage payment she can afford.

“When I get accepted for an offer, how much will rates go up?” She said. Will I not be able buy a house for the rest of my life?”