Buying a home in 2022 will be harder with expected rising interest rates

EL PASO, Texas — A whole generation of people have finally reached the age where they feel ready to buy a home. Unfortunately, the timing could not have been worse. Local experts predict that the housing market will not benefit buyers for at least another year. 

In the past year, historically low interest rates created an extreme demand for homes. Americans all over the nation set out to find a new home or buy their first home. But as the demand skyrocketed, the supply of available homes faltered. 

In El Paso, the current supply of homes sits at a little over 900. That is broken down between 334 active resale homes on the market and over 600 newly built properties. 

“It’s going to take years for supply to offset the demand,” Paulina Longenbaugh, a real estate broker with Cornerstone Realty, explained when asked if things would ever equal out. 

Longenbaugh says in El Paso an average home for sale could see upwards of 20 bidders. And the house will not stay on the market long, contracts sometimes being signed within two to ten days. 

This high demand and low supply have raised prices. In December of 2020, an average home in El Paso County would cost $211,147. In December 2021, that price is now at $237,665, about a 13 percent increase. 

Longenbaugh is educating her first-time buyers about the current market. She stresses to her clients that there is no “window shopping” in the housing industry right now, you must be ready to make an offer, and you must have the sufficient funds. 

“I’m telling clients if you don’t [have] $12,000 to $15,000 in the bank to put down, to pay for closing costs, to potentially pay even your title policy, and maybe some over the appraised value, if it doesn’t match the sales price, you’re not going to be able to compete and you’re just going to be disheartened,” Longenbaugh explained. 

She does believe the demand in the housing market will slow because of high interest rates this year, which could help the supply of homes rebound a little.

But what has created this slow down in the supply of homes? 

Jason Cullers, owner of Cullers Homes, a local builder, says a combination of pandemic-related problems is slowing down the build process. 

Backorders, ever-changing prices on materials, and a labor shortage extend the build time on homes. Cullers says it’s taking his crew 90 more days to complete a home now than before the pandemic. 

And the quickly changing prices on materials make it harder to price a build accurately. Cullers explained that the price of lumber could increase within 36 hours of being set.

“It just keeps going higher and higher,” Cullers said while talking about pricing. 

Because of this, Cullers says builders face a problem when it comes to the appraisal value. Appraisers are setting the value of the home under the sale price. It can be frustrating for builders, who are spending greater sums of money on materials. After all, they still need to make a profit. 

“The appraisals, when they come in, they are not taking into account or maybe don’t realize percentage-wise how much pricing on homes have gone up and how much materials have gone up,” Cullers explained. 

Cullers advises home buyers to get in early this year if they want a new home. Experts expect the interest rate to rise a few times in this year alone, which in turn could lower your buying power. Longenbaugh explained that a one percentage point jump in the interest rate could take $30,000 of buying power away from a client.