Shopping for a home? There’s a lot working against you right now

So many things are working against would-be home buyers this summer.

The housing market remains stuck, with sales pushed lower by a lack of both affordability and inventory, recent credit tightening, higher interest rates and home prices firming up across the country after a brief correction last fall.

For Nick Gaylord, the struggle to buy a home in Minneapolis has gone on so much longer than he expected. He has been looking at homes off and on for a year and a half and has lost out on bids he made on four homes.

“I’ve been checking listings multiple times a day for months,” Gaylord told CNN. “If something comes up you have only a day or two before it’s gone. I’m showing up the day it goes on the market, making fully underwritten offers, sometimes 20% over [the asking price], and not getting the house.”

Gaylord, who works remotely for a tech company in the health care field, said he earns enough that he has advantages that some other buyers don’t, including a strong down payment and location flexibility. But he is looking in a lower priced and more competitive price bracket, under the median price for the area, because he does not want to over-extend himself, especially as a remote worker in an industry that has been experiencing layoffs.

A "Sale Pending" sign outside a house in Morgan Hill, California, U.S., on Tuesday, Oct. 4, 2022.

US home prices stay near record high, even as sales drop in June

“I’m trying to be responsible and prudent,” said Gaylord. “I could buy a bigger home and get approved, but that isn’t what I want.”

He recognizes his privileges coming to the table, and said it is tough to accomplish the commonly held life goal of buying a home, even having those advantages.

“If anything that is an indication of how exceedingly difficult it is for people who don’t have a leg up,” he said. Using a metaphor from video games, he said, “I’m playing on ‘easy’ and it is still hard.”

Why it’s so hard to buy a home now

There are many factors contributing to the frustrating housing market this summer.

The stubbornly low inventory of homes available to buy is keeping prices up and pushing sales down during this typically busy season. Many current homeowners who bought or refinanced into a 2%, 3% or 4% mortgage rate during the pandemic are reluctant to sell and become buyers with a mortgage at 6% or higher.

More than 60% of existing mortgage holders — the potential sellers who could bring inventory to market — are sitting on mortgages with rates below 4%, according to Black Knight, a mortgage data company. Even if they are likely to get a good price selling, they do not have an incentive to list in this environment.

An aerial view shows a subdivision that has replaced the once rural landscape on July 19, 2023 in Hawthorn Woods, Illinois. With homeowners reluctant to sell their homes and give up their existing low mortgage rates the demand for new homes has spiked.

Mortgage rates drop, backing off 7%

In recent weeks, as mortgage rates closed in on 7%, affordability has worsened.

The monthly principal and interest payment needed to buy the median-priced home rose to $2,258 in June, marking the highest payment on record, according to Black Knight.

Nationally, it takes about 36% of the median household income to make the average mortgage payment — more than the recommended 30% allowance for housing. It’s only because of income growth since the fall of 2022 that May was not the most unaffordable month for housing in the past 37 years, Black Knight found.

Adding to all of that is a tightening of credit, with credit availability remaining close to the lowest levels since early 2013, as the industry continues to operate at reduced capacity, according to a report from the Mortgage Bankers Association that analyzes data from ICE Mortgage Technology.

“Lenders are streamlining their operations by offering fewer loan programs, with some exiting certain channels,” Joel Kan, MBA’s vice president and deputy chief economist.

The Mortgage Credit Availability Index fell by 3.1% to 96.5 in May, the lowest level since January 2013, and was essentially unchanged in June. The conventional loan index dropped 2.3% in May, while the government-backed loan index — looking at loans backed by the Federal Housing Administration, the US Department of Agriculture or the Department of Veterans Affairs — decreased by 3.8% in May, and both also remained unchanged in June.

The tightening credit for government-backed loans makes it even harder for lower-income and first-time home buyers, who are also facing the most severe shortage of inventory.

The MBA index that tracks jumbo loans — loans that are larger than conforming loan limits — saw its second monthly contraction, as some financial institutions reduce their appetite for larger loans that aren’t backed by the government.

Small bright spots ahead

For people trying to buy a home, the situation can feel overwhelming and prospects may seem dim. Here are some bright spots.

A new residential apartment building are seen on July 26, 2022 in the Brooklyn borough of New York City.

Renters are being hit harder by inflation than homeowners

Rents are ticking down slightly nationally, even if rents are still out of whack with incomes. Between early 2020 and mid-2022, rents went up about 25%, nationally, according to Realtor.com. But in May monthly rents dipped 0.5% year over year, to a median rent of $1,739 in the 50 largest metropolitan areas.

Mortgage rates are expected to drop the second half of this year as inflation continues to cool, with economists and housing analysts forecasting rates to end the year around 6%.

Although it may not feel like it, home prices are trending lower nationally. The median home price has been dropping on a monthly year-over-year basis since March, according to the National Association of Realtors.

Lastly, during this typically busy time of year there are few buyers, which means less competition, creating an opening for buyers with more limited funds, such as first-time buyers.