Tired of renting in Raleigh, NC, last year Lillian Rouse and her fiance started the hunt to buy their first home together. But after months of searching, they decided to hold out until they were on more solid financial footing.
Ms Rouse, a 28-year-old data analyst, and Mark Debney, 29, who works for a technology company, earn a combined $120,000 a year, but they were worried it wasn’t enough to cover the cost of a home they liked. They parked the cash for a down payment in a CD that they rolled over in February to give them more time to build up their savings.
The economic uncertainty generated by the war in Iran, which began shortly thereafter, only reinforced that decision, she said.
The effects of the war have pushed mortgage rates up and consumer confidence to record lows, making first-time home buying even more daunting.
After optimism at the beginning of the year that the market was strengthening, the traditional spring buying season is in full swing. Sales of existing homes, which account for the majority of the housing market, were flat in April, the National Association of Realtors said on Monday after a 3.6 percent decline in March.
The average home is still taking longer to sell, “suggesting that consumers are taking their time before making decisions,” Lawrence Yun, chief economist for the National Association of Realtors, said in a statement.
Prolonged conflict in the Middle East could keep energy prices high and slow global economic growth and hit sectors such as the US housing market, Moody’s Analytics said in a recent report. Rising inflation expectations will suppress demand for housing, particularly for first-time buyers, Moody’s added.
“You may not have seen the full impact of the war yet,” said Cristian deRitis, deputy chief economist at Moody’s Analytics. “If it continues for a while, it will start to grind more on the uncertainty and the psychology.”
The fear of generally higher inflation has led bond traders to bid up the interest rate on 10-year government bonds, which has a major impact on mortgage interest rates. The average interest rate on a 30-year fixed-rate mortgage, which fell below 6 percent just before the war began, has since risen to 6.37 percent, according to mortgage finance giant Freddie Mac.
The median age of first-time home buyers has risen to 40, up from 30 in 2008, according to the National Association of Realtors. These buyers made up just 21 percent of the market last year, a record low. In part, the decline in fertility rates, which hit a new low in the US last year, has been linked to high housing costs.
Mrs. Rouse said putting off buying a home has also meant putting off starting a family. “It’s not a fun decision to have to make,” she said, noting that she and her fiance valued the stability of growing up in houses their parents bought. “I think it’s best that we wait to have children until we have a house,” she said.
Younger buyers often face other financial constraints, like student loans, Mr. deRitis. And rental costs have fallen, reducing the pressure to jump into home ownership.
When David So, a 27-year-old mechanical engineer for HP in Corvallis, Ore., started looking at homes in February, he said he had “sticker shock” when he ran the numbers. He moved back into his parents’ home to save up for a down payment.
“I want my monthly payments to go down,” he said, noting that could be accomplished by putting more money up front or waiting for mortgage rates to drop.
In addition to a mortgage, other costs associated with home ownership weigh on buyers. Property taxes, insurance and home owner association fees can add hundreds of dollars to monthly housing costs.
The higher costs weigh on affordability for buyers, said Brad Case, chief housing economist for Homes.com, a real estate portal owned by analytics provider CoStar. Market values have increased, he said, which has pushed up property taxes. And insurance prices tend to jump after every natural disaster.
“They have increased dramatically,” he said. And they don’t include things like appliances and gym access that might have been included for renters.
“It’s just a matter of outlining your entire budget and recognizing that now you’re going to have to pay for certain amenities that you didn’t have to pay for before,” he said.
David O’Reilly, CEO of Howard Hughes Holdings, which builds master-planned communities, said first-time buyers “chose to wait until they can afford the community and lifestyle they want.” In response, Howard Hughes told its homebuilders that more starter homes were needed, Mr. O’Reilly.
It couldn’t come too soon, said Ms Rouse, who was dismayed by the quality of existing homes on the market. “Everything was screwed up,” she said. “We don’t have $15,000 to do renovations.”
