Multiple Day 1 offers may be a thing of the past, but high mortgage rates, limited inventory and eroding affordability still force buyers to make most compromises.
“They’re looking for smaller homes compared to what they were on the market for last year,” says Heather Mahmood-Corley Mahmood-Corley, a Redfin realtor in Phoenix, Arizona. “They have to go further out from the city center so they can afford more of what they want.”
Items on the “must have list” have also fallen by the wayside.
No more pools. Forget the extra bedroom.
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For others, it is a cramped lifestyle.
“I’ve had customers tell me they don’t want to eat out as much,” she says. “The new car purchase is on hold.”
So far, higher prices have not caused housing prices to fall, at least not by much. While prices have fallen from their summer 2022 peak levels in much of the country, the National Association of Realtors reported that the January average home price nationally was up 1.3% from a year ago. In some local markets, prices are still rising by almost double digits.
Mortgage rates are still more than double what they were at the beginning of last year. It keeps many home sellers from trading up because of low locked-in mortgage rates.
The lack of inventory in some markets has meant that prices are still holding strong and even rising in some markets.
In e.g. In Westchester County, New York, where inventory is down 19% from last February, the median home price is up 2.4% in January compared to the same time last year.
In Scarsdale, where entry-level homes can range from $1 million to $1.4 million, buyers have become less discerning, says Kamala Vittal, a realtor with Julia B Fee/Sotheby’s.
Vittal, who has managed extensive remodeling projects, including demolitions, says buyers are increasingly willing to take on remodeling projects.
“At $1.4 million last year, they would have expected it to have upgraded bathrooms. But now they’re saying, ‘You know what? That’s fine. Even if it’s blue and green bathroom tiles, I’ll live with it and do it up with the times’,” she says. “I’m often asked for renovation advice.”
The average mortgage rate is nearly three percentage points higher than it was last year at this time, and the monthly payment for a typical homebuyer is up nearly $700, an increase of more than 40%, says Bright MLS Chief Economist Lisa Sturtevant.
At today’s prices, home prices would have to drop 30% for homebuyers buying the median-priced home to have the same monthly payment they would have had a year ago, she said.
The average sales price for existing homes in January rose 1.3% from a year ago to $359,000, according to the National Association of Realtors.
While prices have fallen from their summer peaks and price growth has slowed significantly, the average home price nationwide is slightly higher than it was in early 2022.
Turnkey homes, which come at a premium, are off the average buyer’s list, says Mahmood-Corley.
“To save on the cost of the property, buyers know they’re looking at a home that needs some work,” she says. “Where they’re going to have to put some sweat on to get into the home they can’t get in any other way.”
Swapna Venugopal Ramaswamy is the housing and economics correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and subscribe to our Daily Money newsletter here.