First-time homebuyers Courtney Culbreath and her husband, Tyler Graham, say they’ve been helped and hurt by the fast-moving housing market that is simultaneously cooling down soaring demand yet ratcheting up mortgage rates, which had been rock bottom for years.

“We only paid $72,000 over the $660,000 asking price and we know lots of buyers spent $150,000 or more above the list price,” said Culbreath, a 32-year-old surgeon.

Culbreath and Graham, 30, a federal government employee, purchased their single-family home in Herndon, Virginia, in May 2022 after looking for 18 months and losing three previous bidding wars.

“The house appraised for more than our final offer, and we didn’t need extra cash to make up the difference,” Culbreath said. “We didn’t have any contingencies on our offer and so far, the house seems OK.”

Yet they were stung by mortgage rates, which nearly priced them out of the home that came within their grasp.

“When we started looking at houses, rates were at 3.5%, and we locked in our rate at 4.5% when our offer was accepted,” Culbreath said. “We would probably not have bought the house if we waited any longer, and the rate was 5.5% or higher.”

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First-time buyers represented just 30% of the market in June, down from 34% on average in 2021, according to the National Association of Realtors’ 2021 Profile of Homebuyers and Sellers.

Now the market has shifted again as higher mortgage rates and double-digit price increases are creating even greater affordability issues for many buyers. Competition hasn’t disappeared entirely, but there may be some opportunities for buyers who can handle the higher monthly payments that come with rising mortgage rates.

Buyers throughout the country have faced relentless competition for homes since before the pandemic because of the massive national housing shortage. The U.S. needs an estimated 5.8 million additional homes to meet demand, according to Realtor.com. The pandemic added fuel to the overheated housing market as potential buyers moved to work remotely, take on new jobs, live closer to their families or find a more affordable home.

“Boise has been on top 10 lists of places to live for affordability and a great lifestyle for the past decade, but that turned it into one of the most competitive housing markets in the country with prices going up 25%-35% every year for the past few years,” said Bob Van Allen, president of Coldwell Banker Tomlinson in Boise. “We’ve seen a lot of buyer fatigue from people who made 10 or more offers and didn’t win any of them.”

Higher mortgage rates are putting added pressure on buyers, but frustration has been building for years because of the limited number of homes for sale.

“Buyers are tired and feel beaten up because they’ve lost so many bids that they don’t want to compete,” said Brittany Patterson, senior vice president of the Patterson Group at TTR Sotheby’s International Realty in Virginia. “Buyers need to know that the market isn’t as competitive now.”

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Sellers whose homes have been on the market a week or two are more willing to look at all offers and at buyers with different loans instead of just those with cash or conventional financing, said Melanie Atkinson, a real estate agent with Smith and Associates in Tampa.

“We’re all of a sudden seeing price reductions,” said Michael Manuel, a real estate agent with Long & Foster Real Estate in Old Town Alexandria. “We’re seeing interest rates rise. We’re seeing inventory up. We’re also seeing people that were so determined to lock into a 2%-3% interest rate now all of a sudden sitting on the sidelines.”

But there can be danger in waiting for the market to shift, too.

“One couple I worked with wanted to buy a condo in North Bethesda in late 2021,” said Jonathan Lahey, a team leader with the Fine Living Group with eXp Realty in Washington. “They weren’t quite ready because they were moving money around from retirement accounts. They finally bought in May 2022, but they had to pay $65,000 more for the same type of unit they looked at a few months ago and the mortgage rate was higher.”

Buyers who looked at a $500,000 property in January before mortgage rates rose must pay an estimated $400-$500 more per month if they purchase this summer because of higher rates and prices, Lahey said.

“It’s better not to wait if you can afford it because prices are anticipated to continue to increase, just at a slower pace,” Lahey said. “On top of that, mortgage rates are likely to keep going up and inflation generally is making everything more expensive.”

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Van Allen said affordability is unlikely to improve for buyers who wait, and it could get worse.

“The only difference is that maybe it will get a little easier to find something to buy,” Van Allen said.

Seller sentiments change

Slowing buyer demand and shifting seller sentiment means the supply of homes for sale is inching upward. Sellers who didn’t want people in their homes during the pandemic are now feeling safer and others are choosing to put their homes on the market before mortgage rates go higher.

Nationally, the total number of housing units for sale was 1,260,000 at the end of June, which was up 9.6% compared with May and up 2.4% compared with June 2021, according to the National Association of Realtors. That represents a three-month supply of homes at the current sales, up from 2.6 months in May and 2.5 months in June 2021. A balanced market between buyers and sellers has a four-to-six month supply of homes. Existing-home sales have dropped for five consecutive months, according to NAR.

But markets vary widely. In June 2022, there were 7,473 listings available in the D.C. region, according to Bright MLS, down 0.5% compared with June 2021. However, the drop in active listings was less than it has been in recent months. Home sales were down 22.9% in June 2022 compared with June 2021, but the median sales price in the region was up 5.8% in June 2022 over June 2021 to $598,032. That median sales price is $108,000 higher than the median sales price two years ago.

“Inventory is still really low in Florida, but our market feels a little bit like 2019 when inventory was low, but the market wasn’t as frenzied as it’s been the last couple of years,” Atkinson said. “The average price of a home is up 37% in Florida compared to 2019 and property taxes and insurance are also not as cheap as people think.”

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Demand may decline in Florida because of higher costs, which should ease the strain on buyers even if supply doesn’t rise, Atkinson said.

“We’re seeing fewer buyers scheduling appointments with agents, less buyers at open houses and less requests for showings,” Lahey said. “The market seems to be stabilizing, which is a good thing for buyers.”

Buyers burned out

While rising mortgage rates add a new layer of stress to buyers, fewer bidding wars can counterbalance affordability.

Competition may be easing slightly, but homes are still selling quickly. In the D.C. region, half of all homes sold in seven days or less in June, according to Bright MLS, which is one day longer than in June 2021 and May 2022. Nationally, homes typically sold in 16 days in May, according to NAR, one day faster than in March 2022 and in April 2021.

“We’re starting to see fewer bidding wars and more contingencies being accepted by sellers,” said Matt Ferris, a real estate agent with Redfin in Alexandria. “There are more opportunities for buyers to have a home inspection.”

At the height of the frenzied market, after losing out on too many homes, many buyers were skipping home inspections or spending hundreds of dollars on pre-offer home inspections so they could make a non-contingent offer.

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“People were getting tired of doing that,” Manuel said. “Why spend thousands of dollars in pre-inspections, only to not get selected or to find out that the inspection didn’t meet up to expectations?”

Jennifer Walker, a real estate agent with McEnearney Associates in Alexandria, said buyers sometimes need to take a timeout to reset in a hot market.

“The accelerator can only be pushed down to the floor for so long,” Walker said. “People are burned out, but this is a time when people can reset. They realize that they need someone who understands what’s going on in the market and can help them buy a house.”

One couple Ferris worked with rented a home in Arlington and hoped to stay there, but they wanted more space and eventually expanded their search to Fairfax City.

“Generally, I find most people end up buying something different than what they initially describe as their priority,” Ferris said. “They’ll realize that they can look at wider geographic area or that a busy street isn’t that bad or that they can live with one less bedroom after they see a few houses and know what’s available in their price range.”

Tips

Some buyers who took a break are returning to the housing market despite higher mortgage rates because they still have reasons to move like needing a larger home, rising rent or household changes. For some buyers, it’s “now or never” because rates and prices are likely to continue to rise, Van Allen said. Buyers may find a slightly more balanced market with more time to decide.

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Suggestions for ways to succeed despite high rates, high prices and continued low inventory include:

Be open to another location. A client of Christine McCarron, a real estate agent with Re/Max Unlimited in Boston, thought they didn’t want to live in a particular town, but they decided to look at a property there on a whim and fell in love with it. In Idaho, buyers are shifting away from higher-priced Boise to Idaho Falls and Twin Falls a few hours away for affordability, Van Allen said.

Tweak your monthly budget. Focus on the monthly payment rather than the price difference or the interest rate, suggested Lahey. If you can cut $200 in expenses by limiting your discretionary spending, that may be enough to make your housing payment affordable.

Search within a wider circle. Instead of setting search parameters by a town name or a Zip code, McCarron suggested looking within a circle on a map to capture more potential neighborhoods.

Revisit properties that linger on the market. Sellers may be more willing to accept a lower offer, so buyers could look slightly above their price range at properties that have been listed for 30 days or more, suggested McCarron.

Offer an information-only home inspection. If you face heavy competition for a particular house, Van Allen suggested telling the sellers you won’t ask for repairs on anything a home inspection finds.

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Save a bigger down payment. The benefit of waiting a little longer to make an offer can sometimes mean buyers have more of a down payment to reduce the amount they need to borrow.

Wait for the next season. While the risk is that prices and rates could go higher, there may be more homes on the market and fewer buyers in late summer or early fall, McCarron said.

Look for new construction. In Florida, homeowners insurance can be a major cost for buyers, Atkinson said. Newly built homes often have lower insurance rates that can make monthly housing costs more affordable, she added.

“I tell every single client this: When you want to buy a house, you wait until you fall in love with it,” Manuel said. “That way, if the market changes, you’re stuck with something that you love, and it won’t matter as much even if it loses value.”

Even with higher mortgage rates and slowing buyer demand, home values in most markets are anticipated to rise more slowly rather than to decline. Buyers and sellers may find a more even playing field in 2022 and beyond.

The Washington Post’s Omari Daniels contributed to this report.