Lindsay Vogel has been considering buying her first home since February of this year. She had no luck.
At Burke Center in Virginia, where Ms. Vogel is actively searching, she hasn’t found anything to persuade her to sign on. That’s despite going to open houses at least once every other week, she said.
“It’s very lean pickings. We don’t have a lot of inventory,” Vogel, 34, an electrical designer for an energy company, said in an interview with Yahoo Finance.
Another issue is mortgage rates, which have hovered above 6% for the past month, a far cry from the ultra-low rates seen early in the pandemic.
“I’m waiting for interest rates to drop significantly. I wanted to see what’s out there and get a good idea. If there’s something right in my location and price range, I’d be happy to buy.” , that hasn’t happened yet,” she said.
Many aspiring homeowners like Vogel remain on the sidelines of the housing market due to high borrowing costs, record high home prices and a lack of supply. Although there are signs of a boom in the housing market in some of the country’s most expensive regions, a broad recovery has yet to occur. Sales in the existing home market fell to their lowest level since 2010 in September, according to the National Association of Realtors (NAR).
Meanwhile, the housing market remains out of reach for many first-time homebuyers. Entry-level buyers accounted for 26% of resale market transactions last month, matching previous lows in August 2024 and November 2021, according to NAR data.
One remaining pressure is the “lock-in effect,” said Jim Egan, housing strategist at Morgan Stanley. This refers to homeowners postponing their move because they secured mortgages at low interest rates early in the pandemic. This trend limits the supply of housing on the market.
Egan said current mortgage rates are 2.5 percentage points higher than what most homeowners are paying on their existing loans. In fact, according to research from Morgan Stanley, more than 80% of borrowers have a lower mortgage rate than their current interest rate.
“We are still very far from the rate that would release significant inventory,” Egan added.
Home hunters may not get any further relief for the time being, said Vinay Viswanathan, a research analyst at Goldman Sachs. The Federal Reserve lowered its benchmark interest rate by 0.5 percentage point in September. However, the analyst said there was “limited scope” for further significant declines.
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“We believe the decline in mortgage rates has largely run its course,” Viswanathan wrote in a note to clients earlier this month.
Indeed, mortgage rates have been rising recently as traders reassess their expectations about how aggressively the Fed will cut rates. The average interest rate on a 30-year fixed mortgage was 6.54% last week, up 10 basis points from 6.44% the week before, according to Freddie Mac data. This is the highest level since August.
Recent gains have limited purchasing power. The number of applications for mortgages to buy homes fell 5% in the week ending Oct. 18 compared to the previous week, according to the Mortgage Bankers Association’s unadjusted purchase index.
And while current mortgage rates are more than a percentage point lower than they were at this time last year, when interest rates were hovering around 8%, they still aren’t enough to offset soaring home prices.
The median home price in September was $404,500, up 3% from a year ago, marking the 15th consecutive month of annual price increases, according to NAR data.
“(Housing) prices are a little scary when you first think about them,” Whitney Ellingson, a 28-year-old soon-to-be mother and bar and grill restaurant worker, told Yahoo Finance. She and her fiancé are looking for their first home in Lafayette, Tennessee.
Even though mortgage rates have fallen since this year’s peak in May, many aspiring homeowners remain on the sidelines. (Joe Radle/Getty Images) · Joe Radle via Getty Images
For Ellingson, the math simply didn’t add up.
“The thing that benefits us the most is interest rates,” Ellingson said. “Rising interest rates are going to increase monthly mortgage payments. If interest rates could come down even a little bit, I think it would bring the prices that people are looking for into a more reasonable range. Masu.”
Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.
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