Rising mortgage interest rates and low inventory are pushing home ownership out of reach for many would-be buyers, who are facing higher monthly payments and fewer properties to choose from.
Especially hard pressed are first-time buyers, who accounted for only 26% of sales in 2022, compared to 50% in 2010, according to the National Realtors Association (NAR). Delaware holds the distinction of having the nation’s oldest homebuyers, with 38% of buyers age 55 and older, compared to the national average of 20.7%. The average age of a first-time buyer is 36, an all-time high.
Ryan Ash of Wilmington is 37. He would have bought sooner except he and his fiancée couldn’t find a home in their $370,000 budget. They put in offers on several properties but were always outbid. They want to buy a single-family home, but are willing to take a look at townhouses, too. They found a nice one, but that didn’t work out, either.
“We are on Zillow, non-stop, looking for something that just came on the market,” he says.
People of color also are adversely impacted, the NAR says. While white Americans’ slice of the homebuying pie increased from 82% to 88% in 2022, black Americans bought only 3% of homes, down from 6% the previous year. Home buying for Asian Americans declined from 6% to 2%.
“Housing affordability and limited inventory impacted the buying power of all buyers, however, the greatest impact was felt by black and Asian Americans, as both groups saw a shrinking share of home buyers,” NAR analyst Jessica Lautz said in a statement.
“Two years ago, we were writing offers on the hood of the car. But if you didn’t get the house, you could keep looking. Now, if you don’t get the deal, there’s not much out there."Jim Pettit, real estate agent with Re/MAX of Wilmington
In February, the latest month for which figures are available, home sales in the First State were down 18.6% compared to an already anemic February 2022, according to the Delaware Association of Realtors. In all, 889 properties changed hands that month, compared to 1,092 a year earlier. Year over year, prices rose 8% to a median $329,726.
While the Delaware market hasn’t experienced the steep price drops in some West Coast locales, there is evidence that prices are softening for homes priced above $400,000, with reductions in all three counties. A few examples:
- In Middletown, a three-bedroom, two-and-a-half bath townhome with sauna, solar shades and full-size wine cellar was just reduced $10,000, from $479,999 to $469,999.
- In Camden Wyoming, a newly constructed four-bedroom, five-bathroom single-family home with a three-car garage, gourmet kitchen and custom storage is now listed at $797,500, down from $813,786.
- In Millsboro, a newly renovated Cape Cod-style house with an eat-in kitchen, spacious screened porch and fenced yard was reduced from $425,000 to $399,999.
Listings in the $300,000-$400,000 are especially scarce and are attracting heated competition, says Jim Pettit of Re/MAX in Wilmington. A three-bedroom, two-and-a-half bath rancher in Newark drew 15 offers in two days, fetching $340,000, $25,000 over the listing price.
“There is such limited inventory, listings are still selling with multiple offers,” he says. “Most people who are selling are retiring, settling an estate, or relocating to North Carolina or Florida.”
Higher mortgage rates are deterring sellers, who otherwise would have listed their homes and moved up to more expensive properties.
“People have opted to keep their low-interest rate and just stay put,” Pettit says. “That family who would have moved up from a $300,000 house to a $450,000 house has a problem because interest rates would make their payments too high. So they are building additions, fixing up their houses, trying to make it as nice as they can.”
Even at the height of the sellers’ market, low mortgage rates buoyed the optimism of would-be buyers. But a paucity of inventory is casting a pall on home searches.
“Two years ago, we were writing offers on the hood of the car. But if you didn’t get the house, you could keep looking. Now, if you don’t get the deal, there’s not much out there,” Pettit says.
Ash concurs. He’s looked at homes in Newark, Bear, Old New Castle and other communities, and has yet to seal the deal.
“The selection is abysmal,” he says. “If a home has been on the market for two weeks, it’s usually because there’s something wrong with it. I looked at a place where the sliding glass doors on the back of the house lead directly into a dingy, musty unfinished basement.”
Richard Pollack of First Community Mortgage in Hockessin and Rehoboth Beach is working with more than 30 qualified buyers like Ash, many of whom have been looking for homes for more than a year.
“The selection is abysmal. If a home has been on the market for two weeks, it’s usually because there’s something wrong with it. I looked at a place where the sliding glass doors on the back of the house lead directly into a dingy, musty unfinished basement.”Ryan Ash, 37-year-old resident of Wilmington
Just as the residential real estate market was about to emerge from the height of the Covid-19 pandemic, inflation and interest rates hampered its recovery by keeping inventory low. In a matter of months, mortgage rates more than doubled, from 3% to more than 6%, the highest rate since the Great Recession.
“It is slow, very slow. No one wants to trade a great mortgage rate for a rate that is twice as much because it means your mortgage payment is $1,500 a month instead of $1,000 a month,” Pollack says.
Less-than-stellar credit can make it even more expensive to buy a home. Currently rates for buyers with credit scores of 740 and above are around 6.5% for a conventional loan; for every 20 points below that, there’s hit to the rates.
“If you are at 640, you are looking at 7.5%,” Pollack says.
The government is more forgiving than banks. The Federal Housing Administration (FHA) doesn’t raise rates if borrowers have a credit score of 640 or above. But those buyers are less popular with sellers than bidders with conventional loans.
“The FHA or VA or USDA appraiser has to be tougher on the appraisal of the home because the buyers have little reserves and they need to make sure there are no immediate repair costs for the buyer,” Pollack says.
At the top of the credit heap are cash buyers. “You know that saying, ‘cash is king;’ well, it’s true,” he says.
Ash is hoping to make home ownership accessible by providing sweat equity. He put in a full-price offer on a $330,000 single-family home in Bear with three bedrooms and two and a half baths.
“The bathrooms need to be replaced, but we are willing to do that ourselves,” he says.
For now, he’s waiting for the seller to evaluate other offers.
“I’m hoping our’s is the one that is accepted,” he says.
