Home mortgage rates increased to their highest level of the year in April, to between 7 and 7.5 percent. With little movement from the U.S. Federal Reserve, scarce inventory, and rising prices, purchases continue to be tough for those venturing into the home market this year. Some observers, however, are concerned that buyers tired of waiting for economic factors to change are diving in with little thought to their long-term financial health.
“My customers now seem to be OK with a $3,500 mortgage payment. The demo is strange, though. We’re not talking about doctors. The buyers are pushing the envelope to the nth degree of their finances,” Matthew Hennessey, a mortgage broker and sales manager with Axia Home Loans in Las Vegas, told The Epoch Times.
“It’s so hit and miss and frustrating to see them say, ‘I’m OK with a $3,500 payment,’ when they make around $5,000 a month.”
But is the overriding motivation that some of these buyers are jumping in over their heads because they have a fear of missing out (FOMO)?
“Yes, I believe a lot of these buyers are FOMO,” Mr. Hennessey said.
It’s not just the interest rates that have helped put some buyers in the market well over their heads. The median sale price for a home in April was $378,250, an increase of more than 4.5 percent year over year, according to Realtor.com, just $5,000 less than the record high reached in June 2022.
In Realtor.com’s Weekly Housing Trends View at the end of April, Chief Economist Danielle Hale stated that even though “sellers continue to put homes on the market more frequently than last year, mortgage rates could cause a pullback in this figure as nearly three-quarters of potential sellers are also trying to buy a home.”
She also stated that mortgage rates are likely to remain high in May. Compared with Mr. Hennessey’s assessment, that is an understatement.
“There were supposed to be six rate cuts [by the Federal Reserve] in 2024 and then three and now? It will be the last quarter of 2024 before they even think of it,” he said.
The economic numbers, especially for first-time homebuyers, are not only making home purchases out of reach but also making them risky investments. Redfin said the combination of home mortgage rates now firmly positioned above 7 percent and home prices has brought the median monthly housing payment to $2,775, an 11 percent increase from the same time last year and the highest on record.
Despite these daunting statistics, the Mortgage Bankers Association reported that mortgage applications increased briefly in April before dropping again at the end of the month.
With little chance of prices and rates coming down this year, Jeb Smith, a broker and real estate podcaster in the tony Huntington Beach, California, area of Orange County, said buyers are ignoring rates and prices and are leaping into the market with, in some cases, a little help.
“Why would they wait? My conversation with sellers and buyers is always the same. Wait, and do what? What exactly are you waiting for? Lower prices? Lower rates? In reality, they may not come at all. I think we’re going to see zero rate drops this year,” he told The Epoch Times.
“With the three most recent properties I’ve sold, the parents gave the buyers 100 percent of the money they needed. Two of the properties were priced at $1.5 million and $1.7 million.”
However, Mr. Smith added that he’s concerned that buyers who can’t depend on their parents are leveraging their credit to the highest level possible. “If buyers are approved for $500,000, they are going to spend $500,000 on a house. All of this FOMO has come to light.”
According to Lending Tree, the total national credit card debt reached a record $1.13 trillion at the end of 2023. Mr. Hennessey said spending like that is reflected in some people’s decisions to enter a potentially financially perilous homebuyers’ market.
“What we’re seeing being played out today is that no one wants to talk about the ugliness of it all,“ he said. ”My clients’ credit cards are maxed out. Everyone is spending money to the point that, as a mortgage professional, the first question I ask about is what is their ideal monthly payment. Is $3,000 a month OK for your starter home?”
Many real estate professionals in 2023 advised buying a home at a high rate and then refinancing later when interest rates come down. But Mr. Hennessey said that scenario is off the table for anyone trying to enter the market today.
“Buyers are now going to have to take on a monthly payment for the longer term and survive the next 14 to 20 months of elevated mortgage payments before they have the opportunity to refinance,” he said.
