What's 'in,' what's 'out,' and what to expect this spring home-buying season

By Aarthi Swaminathan

'It's still a seller's market,' one San Diego-based broker says

First-time home buyer Brett Feldman began looking for a home four months ago, eager to own his own property. Mortgage rates were high, and home prices were rising, but the Atlanta native wanted to start building equity on his first home.

The market has turned out to be unusually hot. "It's difficult to find a house," Feldman, a 25-year-old real-estate entrepreneur who is looking to buy a $2 million single-family home, told MarketWatch in an interview.

When a listing pops up and Feldman and his real-estate agent request to view it, they are sometimes told that there are six or seven offers already on the table, he said.

"It goes very quickly. It has shocked me completely," Feldman added. "I wasn't expecting it when I started the process."

Spring home-buying season beckons

Feldman's experience is one that many other house hunters may already be experiencing, or are about to experience, in the coming months.

The spring home-buying season will soon be upon us. And with that, the real-estate industry kicks off what it hopes will be a flurry of home sales. The season is typically considered to be a busy period in the real-estate world, as homeowners and buyers sell and purchase homes ahead of the start of the school year.

But the current market is anything but typical. Though mortgage rates are over 7%, which in theory strains housing affordability and dampens buying demand, the fact that the supply of homes on the market is so constrained is warping the dynamics of the market.

Buyers are contending with a limited level of inventory. And pent-up demand over the last two years - since the Federal Reserve started hiking interest rates and pushed up mortgage rates - is outpacing supply.

"No end in sight to rising house prices," Thomas Ryan, a property economist at Capital Economics, titled a recent note.

In January, resale home prices rose 5.1% from the previous year. The median price of a home was $379,100, which was an all-time high for the month of January.

"Even if mortgage rates fall to 6% as we expect, mortgage rate 'lock-in' will continue to curb home moves. As a result, we only anticipate a trickle of new resale supply coming onto the market over the next few years," he added.

And "that will keep a lid on any recovery in activity, even as lower mortgage borrowing costs draw some buyers off the sidelines," Ryan wrote.

New listings rise sharply in February

But a thawing may be at play in some local markets. New listings rose in February, which some real-estate economists consider to be an early sign of a pick-up in sales.

Realtor.com said that the number of new listings on the market in February was up 11.3% as compared to last year. Redfin said listings were up 14%, which was the biggest increase in nearly three years. Zillow estimated that new listings were up nearly 21% in February, as compared to last year.

Realtor.com is operated by Move Inc., a News Corp subsidiary. MarketWatch publisher Dow Jones is also owned by News Corp (NWSA).

"We're starting to see a modest rebound," Orphe Divounguy, a senior economist with Zillow, told MarketWatch, "which bodes well for the housing market this spring."

An early look at Zillow's February data provided to MarketWatch indicated that homes went from being listed to going under contract in 17 days on average, which is "really, really fast," Divounguy said. Before the pandemic, that figure was about 27 days.

The typical home in the U.S. was valued at $349,216 in February, the company's data showed, which means the typical mortgage payment for a buyer who will put 20% down is about $1,800 a month.

The metros where new listings were up the most were Seattle, Minneapolis, and Austin, Texas, where the figure was up 51% in February, as compared with the previous month.

To be sure, the rise in listing activity doesn't equate to a flood of listings that will reduce the pressure of low supply. "Inventory is still 36% below where it was before the pandemic," Divounguy said.

"So we really have a long way to go," he added, until we reach a more balanced market.

Mortgage rates also remain a challenge for buyers, as they stay over 7%. "Right now, rates are hyper-sensitive to any kind of news or data that's given," Phil Crescenzo, division manager at Nation One Mortgage, told MarketWatch.

At the same time, Crescenzo said that over the course of February, his branch saw a 10% increase in purchase loans, with most being Federal Housing Administration loans and Veterans Affairs loans. About half were first-time home buyers.

"When there's news, the market's starving for it, and it's causing whiplash," he added, and that's impacting the rates that lenders are able to quote borrowers.

What's in and what's out for home buyers in 2024

With that in mind, here's what home buyers should expect as the new reality this spring home-buying season, and here's what's in and what's out, according to MarketWatch's conversations with real-estate agents, economists, and buyers.

What's in: 7% rates

In San Diego, Jason Cassity, a real-estate agent with REAL Broker, told MarketWatch that even though rates are still elevated as compared to the pandemic era, people were moving on.

"We're doing twice the business at this point as we were last year," Cassity said, as "buyers are realizing that rates might not ever come back down to 3% or 4%. So there's a new normal settling in."

But for a homeowner like himself, who has a 2.9% rate on his home that he bought in 2021, moving to a bigger home or a better school district is not an option at this point due to how much more expensive the market has become. "We couldn't even afford the house that we have now," Cassity said.

What's in: Buying a home in your 20's

Some young aspiring homeowners are seizing the moment to build home equity and are well-prepared to pay for big-ticket properties.

Feldman, who owns a commercial real-estate property management company, is keenly aware of how many of his 20-something peers aren't in a position to buy a $2 million home.

About one-third (31%) of Gen Z members say they live at home with a parent or family member, according to a recent survey by Intuit Credit Karma. Among those in Gen Z who rent, 41% say they've had to sacrifice buying essentials to cover their rent, the survey found.

Feldman is eager to start building equity. The 25-year-old has been looking at homes with Mike Toltzis, an Atlanta-based broker at SET Real Estate Group at Compass, specifically in Sandy Springs and Brookhaven, which are Atlanta suburbs where he would be close to family.

If he ends up buying a home, he would be part of a minority. About 26% of adult Gen Zers owned a home in 2023, which was unchanged from the previous year, according to analysis by real-estate brokerage Redfin. But most Gen Zers are tracking ahead of where their parents were at the same age, the company noted.

They're also poised to be the biggest beneficiaries of a so-called silver tsunami of homes hitting the market, after baby boomers age out.

Even with a relatively high budget of $2 million, "that price point is challenging in the metro Atlanta area, and specifically the neighborhoods he's targeting and looking to live," Toltzis said, due to limited inventory and a so-called lock-in effect as homeowners feel little incentive to give up their rock-bottom mortgage rates.

Roughly 9 in 10 homeowners have a 30-year mortgage with a rate of less than 6%. 60% have a rate below 4%. The current 30-year mortgage rate was 6.88 as of March 7, according to Freddie Mac.

Sean Balsiger, a 29-year-old homeowner who grew up in Oregon, is looking to move to Jupiter, a town in Palm Beach County, Fla., for a job opportunity, but is finding it hard to buy a home within his budget of $1 million.

The repeat buyer and his wife have been looking for a two or three bedroom single-family home for the last two months.

But they haven't been able to find anything they like in their price range. "The area that we want to move to, there's just really nothing under a million dollars. And that's making it really difficult to figure out whether or not relocation makes sense for us," Balsiger said.

The couple is able to try to buy a second home while still in their 20s thanks to help from their parents, Balsiger said, who helped the couple buy their first home in Oregon.

What's in: Longer commutes

As the number of home listings in desirable neighborhoods continue to be lower than before the pandemic, house hunters are adjusting to the possibility of a longer commute.

Repeat buyer Mike French and his wife have been looking to buy a four-bedroom single-family home, or a 3-bedroom property with a study, for up to $550,000 since January. They've been renting for 12 years.

The Orlando-based couple, who had previously owned three homes out of state, were looking for something more permanent after their longtime landlord said they were going to move back into the home.

With their youngest child entering their senior year of high school in the fall, the couple wants to buy a home a little further away from the school district they were renting in.

Buyers are still open to moving further away from their current location. The median distance between the home that buyers recently purchased and the home they moved from was 20 miles in 2023, according to a report from the National Association of Realtors. That was down from 50 miles the previous year, but up from the previous median of 15 miles.

But distance to the office has become a priority for home buyers, based on a 2023 analysis by Realtor.com. Many buyers are looking for options close enough to where they work.

(MORE TO FOLLOW) Dow Jones Newswires

03-12-24 1322ET

Copyright (c) 2024 Dow Jones & Company, Inc.