Buying a Home Gets Easier in a Cooler Market—for Those Who Can Afford It

The potent mix of challenges buyers face has slowed the housing market, but millions of homes are still changing hands this year. Some buyers find they’d rather hunt now than deal with the bidding wars and invisible purchases that defined the frenzied market last year.

It took only a few weeks in September for Mr. Lanser and Mrs. Manfreda to find the home they were looking for in a Boston suburb of Waltham. The newly built property had been up for sale for months and the seller had lowered the price a few times. The couple offered the final asking price and it was quickly accepted.

“The positive of lowering the price was more important to us than the higher interest rates,” said Mr. Lanser.

The 30-year fixed mortgage they negotiated had a rate of 4.5%, higher than they would have paid a year ago. But that wasn’t enough to derail the purchase and keep them renting in Boston, where they expected their landlord to raise rent for the second time in as many years.

The market is slowing in virtually all regions and housing types, and economists expect it to continue. Previously owned home sales fell nearly 24% in September from a year earlier to a seasonally adjusted annual rate of 4.71 million, the weakest level since the peak of the pandemic.

Higher interest rates have pushed many buyers out of the market. The average interest rate on a 30-year mortgage has doubled to nearly 7% this year, including an increase of nearly 2 percentage points in recent months.

Those who can absorb the higher mortgage costs will find a calmer market. Last year, many buyers paid well above the asking price and waived common safeguards, such as the ability to get out of the deal if something goes wrong during the inspection or mortgage approval. Now they can take their time, land at a reasonable price and keep all the protections in place, brokers say.

Americans have been siphoning off a lot of savings during the pandemic, and bank executives say American consumers are generally financially healthy, despite the highest inflation rate in decades. Still, a certain type of buyer is needed to be able to afford a home in 2022.

According to Mike Fratantoni, the chief economist for the Mortgage Bankers Association, a trading group, retail traders seem to be the most willing to buy in today’s market. They are less affected by inflation than the lower-end buyers, and also less affected by falling stock and bond prices than the higher-end buyers.

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Applications for purchase mortgages with balances of $300,000 to $510,000 fell less than a year earlier in September than applications for mortgages both larger and smaller, according to MBA data. (Someone who puts down 20% on a mid-price home would have a mortgage of about $308,000.)

A relative bright spot in the market is that people are moving out of expensive areas and buying cheaper areas, according to Sam Khater, Freddie Mac’s chief economist..

“The rate hike hurts, but the market you’re going into is still a lot more affordable,” he said.

The seller of the house Eric Lanser and Allison Manfreda bought had reduced the price several times.

Purchases among people who move from one urban area to another have fallen by half as much as purchases among people who move locally, Mr. Khater.

Jeffrey Zyjeski and Ashley Calabrese moved an hour’s drive to West Hartford, Conn., from Sturbridge, Massachusetts this summer, in part to be closer to family. The couple sold their old house and bought a new one below the original asking price.

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They now wanted to take out a mortgage in case interest rates continue to rise. They used an adjustable rate mortgage set at 4.625% for the first 10 years. ARMs typically offer a lower rate than a fixed-rate mortgage for the first few years. Last week, they made up the bulk of mortgage applications since 2008, according to the MBA.

“Waiting won’t help in the long run,” said Mr. Zyjeski.

Buyers using low down payment loans, such as those offered by the Department of Veterans Affairs and the Federal Housing Administration, will also be able to compete better with other buyers this year. According to Black Knight, about 27% of mortgage rate blocks in September came from the FHA or VA loan programs, up from 19% in January Inc.,

a provider of mortgage technology and data.

These buyers were pushed to the sidelines last year as sellers preferred to accept offers from the masses of people who paid cash or made large deposits.

There are still plenty of buyers who use cash and make larger deposits. According to the National Association of Realtors, nearly a quarter of buyers have paid all cash in recent months, roughly equal to the stock a year ago. But now they’re doing it to keep their costs under control.

Housing is one of the most weighted categories when tracking inflation, but it’s also one of the most complicated to measure. WSJ’s David Harrison explains how the shelter index is calculated and why it can cloud the inflation outlook for the Fed. Illustration: Laura Kammermann

When Davis Kali bought his home in Englewood, Colorado this summer, he decided to give up 30%. That made it easier to tolerate the monthly mortgage, which had a rate of 5.375%, and keep the payment around what it would cost to rent.

His parents helped so he wouldn’t have to sell his investments at a loss. He bought the house for $600,000 – $15,000 less than the asking price.

“I’ve been pretty lucky to get pretty much what I was looking for,” said Mr. Kali.

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