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Rising Home Prices are Pushing Out Many Homebuyers

Rising Home Prices are Pushing Out Many HomebuyersIn some big cities, home prices have climbed up to 20% or more, and hopeful homebuyers are becoming increasingly frustrated at getting frozen out of the market. Rising prices are not all that’s to blame, as many hot markets also face competition for tight inventory. The five hottest housing markets have climbed at least 17%, well above the national average price increase of 13% in the past year. In Las Vegas, home prices have gone up nearly 25%, but many cities aren’t far behind. San Francisco has gone up 23%, San Diego and Los Angeles prices have gone up 19%, and Atlanta has climbed 17% in the last year.To make this situation tougher for prospective borrowers, mortgage rates have also gone up almost a full percentage point to 4.3%. This means a home buyer who obtains a $200,000 30-year fixed mortgage now with 20% down pays $896 per month, which is a 25% increase over last year.

Home affordability is not all that is forcing buyers out of the market, as many buyers who have no problem affording payments are having difficulty even closing on a home. Buyers still face stiff competition from all-cash buyers, which make up a larger-than-typical portion of buyers.

In February, 35% of all purchase offers were all cash across the country, a 30% increase from the previous year, according to RealtyTrac. Where this money comes from depends on the market; in New York it comes from foreign buyers and Wall Street Workers, while South Florida’s all-cash buyers are South Americans purchasing real estate as a safe haven. Last month, more than 70% of all purchases in Miami were all cash.

This high number of all cash buyers are grabbing what little homes are available, while new construction remains below normal levels. Inventory is not loosening as many homeowners are waiting to list their homes out of fear that they will not be able to buy a new home.

Some economists worry that housing bubble trends are re-emerging as home prices continue their climb, including more buyers relying on adjustable rate mortgages and low down payments to afford a home, with more pressure to move to the suburbs for housing.

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