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First-Time Homebuyers Face Challenges in Tough Market due to High Prices and Interest Rates

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“Rising high prices and interest rates pose a formidable challenge for first-time homebuyers in today’s housing market, making the dream of owning a home an uphill battle.”

High home sales prices and mortgage interest rates are making it difficult for first-time home buyers to enter the market. Despite the COVID-19 pandemic, the housing market in 2020 experienced a surge in sales, low inventory, and offers above list prices. This trend continued into 2021, with inventory levels shrinking and prices climbing even higher.

In the Phoenix metropolitan area, a balanced market would typically have around 30,000 properties available for sale. However, by the end of 2021, the inventory had dropped to only 4,400 properties. Although it has increased to about 13,000 properties now, it is still far below the balanced inventory level.

As mortgage loan interest rates have risen, the frenzy in the housing market has subsided, particularly for first-time buyers. The current average rate for a conventional 30-year fixed mortgage is around 8.063% for a $430,000 home in Arizona. This high interest rate, combined with soaring home prices, has made it challenging for many buyers to afford a home.

While interest rates may eventually fall, it is difficult to predict when and by how much. Rates below 3% were largely driven by the pandemic and are unlikely to be seen again. However, if rates can return to the fours or fives percent range, it could help restore a more balanced market.

In northern Arizona, the housing market is also experiencing high prices and low inventory. Luxury properties are selling quickly, often with cash offers, while non-luxury home markets are also feeling the squeeze.

For first-time buyers who are struggling to qualify, new-build financing with lower interest rates or FHA loans with low down-payment options may be the best route. Programs like Zillow Home Loans’ 1% down payment incentive are also helping eligible buyers reduce the time it takes to save for a down payment.

Overall, the current housing market presents challenges for first-time home buyers. Despite the frenzy subsiding, high prices and interest rates continue to make it difficult for many to enter the market.

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